China’s decision to lift rates on Christmas Day could spell bad news for Australia.
Earlier this month, China decided to lift its interest rate for the second time in two months in a bid to quell growing inflation concerns.
Australia’s economic outlook is closely aligned with China. As such, weak GDP growth in China would equate to an equally slow pace of expansion in Australia.
China’s inflation is currently growing at rapid pace, with the country’s consumer price index jumping 5.1 per cent in the year to November 2010 – the fastest inflation growth for more than two years.
Australia’s RBA policy makers discussed the troubles in China at its latest monetary Board meeting, stating that “attention [in China] was increasingly turning to the upside risks to inflation”.
While the RBA doesn’t seem too concerned with the problems in China at the moment, any dramatic growth slowdown in the country could eventually have an adverse impact on Australia as China accounts for more approximately 25 per cent of the nation’s exports.
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