A lot has happened since the RBA's August meeting, the net effect of which must have been to make the RBA board a good deal more concerned about downside risks to the outlook. To a large extent these risks emanate from China, Societe Generale observes following developments in Austraslian economy:

Firstly, recent data have been substantially weak, especially those relating to its industrial sector and thus raising concerns about more acute economic weakness than Chinese Q2 GDP data indicated. The industrial sector is, of course , of key importance for Australia's goods exports - much of which is resources and much of it destined for China.

Secondly, the shift in the exchange rate regime has added to the uncertainty in various ways: most directly by reducing the purchasing power of the Renminbi.

One way or the other, this will put additional downward pressure on most commodity prices, especially iron ore. It has also had a depressing effect on the currencies of other regional economies, exacerbating downward pressures on their purchasing power, which in turn will probably hurt their demand for commodities, says Societe Generale.



At the margin, all this is bad news for Australia. That said, one saving grace is that the Australian dollar itself has not appreciated against the RMB and is hitting new cycle lows on a trade -weighted basis - whic h is good ne ws for Australia's fairly important service export sector. The bottom line is that the board's view is likely to have shifted from the rather benign assessment of the August meeting which the minutes described as follows: "Members observed that the downside risks to the outlook for Chinese growth identified over the past year had receded somewhat", notes SocGen.