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Whatsapp This Western Sydney home sold for $565,000 at auction in February 2015, smashing the reserve set at $1.

After pausing for two months, the Reserve Bank is poised to cut the cash rate tomorrow to a new record low of 2 per cent. That could see some discounted variable mortgage rates fall to close to 4 per cent. Sheryle Bagwell previews the week ahead in business and finance.

It was another strong weekend for the booming Sydney and Melbourne housing markets, but could the RBA cut interest rates again regardless?

So worried is the International Monetary Fund that it's reportedly sending a crack economic team to Australia to assess the housing market risks for themselves.

That's what most economists are tipping, but they have been wrong all year. We do know that the RBA wants to deliver at least one more rate cut in this cycle, because it's been telling us so in speeches and statements.

If it doesn't cut rates on Tuesday, then the markets will start to question the sincerity of the Reserve Bank's easing bias. If that happens, then the dollar could very well move higher—it climbed above 80 US cents last week—something the RBA would be keen to avoid.

However, having said that, the decision is still a close run. The booming Sydney and Melbourne property markets are an obvious hurdle.

House prices in Sydney climbed a further 1 per cent in April, and are now nearly 15 per cent higher than a year ago.

Aside from Darwin, all capital city house prices have risen over the past year, but the gains have been relatively small outside Sydney and Melbourne.

It's this patchy national housing market that opens the way for the RBA to deliver more stimulus to the broader economy through another 25 basis point rate cut.

The thinking is the Reserve Bank can leave concerns about skyrocketing Sydney house prices to its sister regulator, the Australian Prudential Regulation Authority. APRA has tools to ensure the banks don't engage in risky lending, although it's not clear how and when they intend to use them.

Loans to investors—which have been the key drivers of this east coast property boom—have risen more than 10 per cent over the year, which is a level that should be setting off alarm bells at APRA.

The major concern is that the rising cost of property is forcing households to take on more debt. At a debt-to-income ratio of 177 per cent, Australians are once again among the most leveraged people in the world.

The International Monetary Fund is so worried that it's reportedly sending a crack economic team to Australia to assess the housing market risks for itself. Still, those fears may not be enough for the RBA to keep rates on hold again tomorrow.

With strong demand for housing loans and low funding costs, we're seeing glory days for the powerful banking sector. But are dark clouds looming?

Yes, and that's why this week will be an important one for bank investors with three of the big banks reporting their half-yearly profit results, starting with Westpac.

The big banks will still post big profits, but attention will be focussed on their outlooks for profit growth going forward. Investors are already beginning to predict the news won't be good.

After a surge in bank shares this year, there was a mini-sell off last week as investors start to ponder the various challenges ahead for the big banks.

Firstly, the economy is stuck in a low growth rut which is causing the federal budget deficit to widen, raising concerns about how long Australia can hold on to its prized triple-A credit rating.

If the government's credit rating is downgraded, a downgrade to the banks' credit ratings could follow, which in turn would increase their funding costs.

At the same time, the regulator APRA is talking tough on the need for the big banks to hold more capital in reserve as an insurance policy against a housing collapse—a move that would also eat into their profits.

It's hard to feel sorry for the banks. Unlike their counterparts around the world, they had a good financial crisis.

They managed to increase their market dominance and profits at a time when many of their customers (as it turns out) were shunted into financial products by rogue planners that would cost them dearly.

The concern now is that this party for the big banks may now be over.

Meanwhile, no cigars are likely to be handed out after the federal Budget. Are the forecasts really showing deficits as far as the eye can see?

Yes, that's right.

The 2015-16 federal Budget is just over a week away from being handed down, and Chris Richardson of Deloitte Access Economics is once again predicting some dire numbers will be unveiled.

He is projecting $150 billion in deficits over the next four years—almost $50 billion worse than official forecasts.

Indeed, this year's deficit looks set to widen to nearly $46 billion, which is not much improvement on the $48 billion deficit that Labor left the country in its last year of office.

Richardson lays the blame on a slowing China and the weak iron ore price, but also on falling income tax revenue because of the lack of growth in real wages

All that, plus the Senate gridlock on policies proposed at the last Budget, is blowing gaping holes in the government's balance sheet.

However, it appears there is little the government can do. If it spends up big to try to stimulate growth in the economy, which is what some economists think it should be doing, the deficit will blow out even further, possibly at the cost of Australia's triple-A credit rating.

But if it makes even deeper cuts to spending than it has, it will come at a cost to consumer and business confidence, and maybe even at a cost to Tony Abbott's prime ministership.

So the government will do what most governments around the world do when faced with a fiscal crisis—it will likely kick the can down the road.

RN Breakfast is the show informed Australians wake up to. Start each day with comprehensive coverage and analysis of national and international events, and hear interviews with the people who matter today—along with those who’ll be making news tomorrow.