This statement contains information that has become available since the Staff Report was circulated to the Executive Board on January 24, 2018.
At 1.9 percent in the fourth quarter, headline and core inflation rose in line with the previous quarter (in year-on-year terms). Annual price increases in market goods and services excluding volatile items remain close to 1 percent, while prices of tradables fell again, as in the previous quarter. These developments are broadly in line with the Reserve Bank’s latest inflation forecast and IMF staff’s projections.
Growth in private sector credit slowed further in December. In year-on-year terms, it declined to less than 5 percent, with the bulk of the slowdown accounted for by business and housing investor loans, with the latter highlighting the continued impact of recent prudential steps taken by APRA to restrict riskier forms of mortgage lending, in line with expectations discussed in the Staff Report.
The authorities have informed staff about additional housing-related capital flow management measures (CFMs). The state of South Australia introduced as of January 1, 2018 a stamp duty surcharge of 7 percent on residential property purchases by foreign buyers and temporary residents. Based on press reports, the main reason appears to be concerns that more attractive property values in the state could start attracting investor interest this year, given high residential real estate valuations in the major east coast capitals. The pre-emptive imposition of CFMs would be inconsistent with the Fund’s Institutional View on capital flows. Another potential new CFM is the removal, as of July 1, 2017, of a stamp duty concession in South Australia for presales of new apartments that was renewed for another year only for domestic buyers but not for foreign buyers. Pending further discussion with the authorities and an assessment of housing markets in South Australia, staff has yet to form a view of the appropriateness of these measures.