Timely indicators of economic conditions have generally improved in the past month. Consumer sentiment has bounced back, after having fallen sharply in response to the May Federal budget. Activity in the housing market has picked up, after having slowed around May. Business sentiment remains positive and a recent lift in business credit growth provides an early sign that corporate sector investment may be starting to lift. China’s growth has also lifted, which is providing some support for iron ore prices in the past month, following significant falls earlier in the year. The labour market remained broadly steady, with the unemployment rate around the same level as at the beginning of the year. At the same time, the Q2 CPI print showed that underlying inflation remains solidly in the upper half of the 2-3% target band. Very accommodative monetary policy appears to be working and inflation is in the upper half of the target band, which provides little scope or necessity for the board to consider cutting rates further. Indeed, in my view, the risk that low rates may start to drive excessive risk taking in the housing market is building, which could eventually threaten financial stability. I recommend the cash rate is left unchanged this month, but expect that the cash rate may need to be lifted in the next 6-12 months partly to prevent a housing bubble from inflating.