Loose monetary policy should not worry China

Mounting inflation pressure is a prime concern when a country's central bank loosens its monetary policy to boost economic growth, which the People's Bank of China did on Tuesday by cutting the interest rate and deposit reserve ratio. To avoid triggering high inflation, therefore, a country should loosen its monetary policy only when inflation pressure is low.

The economic fundamentals of China have created a comparatively wide space for the central bank to loosen its monetary policy, so there is little risk of a sharp rise in inflation.

In fact, for a long time, inflation pressure has been low in China. As the largest trading country that relies heavily on foreign trade, China knows full well that the inflation pressure, to a large extent, comes from external inputs, especially the increase in prices of primary commodities such as food grains, raw materials, energy and manufactured goods.