The Reserve Bank of Australia has singled out Europe's accelerating debt crisis as the major factor in its decision to slash the official interest rate two weeks ago.
In the minutes from its December meeting, the RBA board says the deteriorating situation in Europe outweighs good news about the Australian economy, which would normally have resulted in interest rates being left on hold.
''Developments in Europe continued to pose downside risks to the global economy and, consequently, to Australia," the minutes said.
''These risks had, if anything, increased, though the timing and magnitude of any effects that might flow from them remained very difficult to predict.''
In cutting the cash rate by 0.25% to 4.25%, the RBA noted there would be little or any growth in Europe in 2012 adding to forecasts of a long and deep recession.
''A much worse outcome was possible, involving a severe contraction in that European economy which would have global effects," the board noted.
''There was a non-trivial possibility of a very sharp contraction.''
In a sign of the current consumer caution, the RBA said deposit growth had been solid and was well in excess of lending growth.
The RBA also noted a slow recovery in the United States, with consumer confidence improving and the jobless rate falling.
