Inflation over the past six months has been 4%. Suggest the action that the RBA is likely to take in terms of monetary policy and explain how such a policy affects the cost of debt in the economy along with overall economic activity.

In the wake of rising house prices, APRA decides to relax capital requirements on banks and reduces the Capital Adequacy Ratio from 8% to 9%. 

Explain the likely impact of this regulation change on bank Net Interest Margins (NIM), bank profitability, bank risk, the interest cost of bank loans and flow of funds in the economy.