The fallout from the Reserve Bank of Australia’s decision to cut interest rates will be as long lasting as it was sudden.

Markets reacted within an instant of the news, with the dollar plummeting against the Greenback. But financial experts are warning the new record low interest rate of 2.25 per cent is a virtual admission of weaker than predicted economic growth in 2015.

“Growth over all is now forecast to remain at a below trend pace somewhat longer than had earlier been expected,” said the RBA on Friday.

“The timing of the recovery in non-mining business investment has been pushed out until later in 2015 partly because there has not yet been convincing evidence of a turning point in the forward looking indicators.”

The recent fall in mining investment has only slightly been offset by surges in consumer spending. Household savings from lower petrol prices are being undercut by poor employment figures and almost flat-lined wages growth.

And while many are looking to the housing sector to buoy the economy many do so while partially covering their eyes. A rise in the demand for housing will see a further rise in housing prices – already nearing all-time highs. Many, both within and outside the industry, already believe house prices exceed their true value. The big fear then is that any housing lead economic recovery will be based on a market bubble.

Lon approvals have shot up by five per cent in the year to November 2014 with first homeowner grants trending even higher.

The RBA and government are betting a housing led recovery will kick start the economy before rising interest rates send some new mortgage holders to the wall. Some other industry sector will have to step into the breach when housing eventually begins to contract.

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