By Greg Peel

The minutes of the September RBA monetary policy meeting told us that the current setting "left the board well placed to respond to evolving global and domestic economic conditions". It was the first hint we'd had since last November's rate rise that the RBA was no longer simply holding back on an inevitable rate hike as the European situation and the Australian two-speed economic pressures played out. Were it necessary to cut rates, the RBA was implying, then so it will be done.

No one was expecting the RBA to cut its cash rate today. But what the central bank has provided, comparing this month's policy statement released today from Glenn Stevens with last month's policy statement, is a more definitive declaration that the board is now poised to make a cut if things keep going the way they are.

Last month the board noted conditions in financial markets had been "very unsettled", and this month it notes conditions "have continued to be very unsettled", with no prizes for guessing where the biggest problem lies. Last month the board suggested that at that stage, "little evidence is available to gauge the effects of the European and US problems on other regions". This month the board notes almost apologetically "it will take more time" for evidence to emerge. "Thus far," says Stevens, "economic conditions are continuing to expand in China and most of Asia". In September, commodity prices were remaining high. In October, prices have declined, Stevens, acknowledges, "though in general they remain high".

The RBA would have been well aware of the release earlier today of Australia's trade balance result for August, which showed the second biggest surplus on record. Exports jumped 8%, outstripping a 3% increase in imports. Economists were surprised by the strength of the numbers. In isolation, one might suggest there is no way a central bank could cut rates in the face of such a solid economic position. Even August building approvals jumped by a greater amount than expected.

Yet Australia is not immune from Europe in terms of the impact on global confidence.