Monetary policy remains “finely balanced” as the Reserve Bank board minutes for the February 2 meeting, released today, have again reminded us.

That means rate decisions will be a month-to-month event, unless there’s a flow of economic data that points heavily one way or the other.

But what are we then to make of a more up-to-date survey on business conditions today from the National Australia Bank?

Its January survey of business showed a sharp rebound in confidence, partly reversing December’s big fall, but also revealing a “significant” fall in business conditions.

Business conditions had remained solid in December while confidence fell, but the moves were reversed quite markedly in January, according to the NAB. That came after last Thursday’s surprisingly strong January employment figures, with the unemployment rate down to 5.3% and 52,700 jobs created.

The NAB commented: “Last Thursday’s labour market report has clearly increased the risk of a March move, while today’s survey results probably move in the other direction.” In other words, leaving the policy decision ”finely balanced”.

The RBA minutes suggested something similar:

“As at the previous meeting, members considered the policy considerations to be finely balanced. Members expected that, if economic conditions continued to improve as expected, further increases in the cash rate were likely to be necessary.

“But they did not regard that outlook as requiring an increase at every meeting, and they saw the earlier moves to begin withdrawing monetary stimulus promptly as affording the board a degree of flexibility in its subsequent decisions.

“This allowed the possibility of waiting to receive some more information on how the economy was responding to the monetary tightening that had already occurred. Such a course would also allow time to monitor events overseas.

“Members noted that many market participants expected a further increase in the cash rate at this meeting. They concluded that, on balance, the stronger case was to leave the cash rate unchanged for the time being. ”

And the NAB made a good point: “Every (RBA board ) meeting in 2010 is probably live and a decision will very much be data dependent.” In other words, we are back to normal policy making, as we pointed out during the run of rate rises in November-December.

While this “finely balanced’ state of monetary policy is not such a shock, what was a surprise was the downturn in business conditions last month.

The NAB said: “Business confidence jumped 7 points (to an overall reading of +15 points) largely reversing last month’s 11-point fall. Higher confidence was most evident in manufacturing, finance and business services and personal and recreational sectors. As such confidence appears to be stabilising at surprisingly high levels.

“Business conditions, on the other hand, fell significantly — down 7 points to +3 index points. That largely reflects large falls in trading conditions (down 14 to +3 index points) and profits (down 10 to +2 index points). Labour market conditions were broadly unchanged (down a point to +6 points).

“The falls in business conditions were very broadly based — with only wholesaling improving. Particularly sharp falls were again reported in retailing and mining. Similarly, forward orders fell sharply — down 11 to -4 index points. As such this is one of the sharper falls in recent times and takes orders back to levels not seen since mid-2009. Export sales also remained poor (-12 points).

“In terms of business outcomes, the survey is clearly signalling a relatively slower start to 2010 from the very high rates of growth in late 2009. It also appears that the slowing was unanticipated in that the falls were heavily concentrated in sales and profit levels. Thus trading conditions fell by a large 14 points and profits by 10 points.”

The RBA takes this NAB survey seriously: it referred to it in today’s minutes:

“Surveys suggested that business conditions remained firm, though the NAB survey, which became available during the meeting, suggested a significant fall in business confidence back to around average levels.”

Now confidence is up and conditions are weaker, and it is the conditions that are the more important.