The Reserve Bank has joined central banks around in the world in being caught badly short by the rapid worsening in world financial markets over the past few weeks.

The release of minutes from the November board meeting and a statement issued with today’s interest rate decision show a very different appreciation of global stability.

In November, things were returning to some normality, with interest rate spreads easing and shares doing well. A month later and investors are nervy, interest rates are continuing to rise, losses and write-offs for financial groups in the US and Europe continue to grow and there’s no sign of a slowdown in the root cause: the sub-prime mess, which now looks to have spread to Britain.

In the statement accompanying today’s decision to hold rates at 6.75%, the RBA recognised the worsening in global conditions. In fact the sharp increase in turbulence and volatility was why interest rates remained on hold:

The Board remains concerned about the outlook for inflation. But given the heightened uncertainty about the international outlook and the local trends in wholesale borrowing costs, both of which could have a bearing on inflation over the medium term, it judged that the current stance of monetary policy should be maintained for the time being.

But the minutes from last month’s Cup Day meeting, which were released today, show a much more sanguine view of the global economy and financial market conditions.

It’s not often you see the gurus of economic management caught out so badly by a quickening in the pace of change in financial markets. Don’t believe brokers and others who claim 2008 will see a rebound: conditions are far too murky to say that with any certainty.