The RBA cut the cash rate by 25bp to 2.75%, contrary to our view that rates would be stable. Much of the accompanying statement was relatively upbeat about economic conditions noting that housing and consumption spending was starting to respond to earlier rate cuts. It appears the low Q1 CPI gave the board the confidence to cut the cash rate and an implicit view that the pullback in resource investment spending will be very big providing room for other parts of the economy to grow more strongly. Given that the board decided to cut this time, another 25bp cut cannot be ruled out. Our view is that the rate cut today and any further cuts run the risk of promoting a housing boom which in turn implies a risk that rate hikes in 2014 and 2015 may need to be bigger than we have previously forecast. We see the possibility of another cash rate cut to 2.50% in Q2 2013. We also see rate hikes commencing in Q1 2014 taking the cash rate to 4.00% by the end of 2014.