(Bloomberg) -- China’s central bank said it will “increase counter-cyclical adjustment” to ward off downward pressure on the economy, while staying vigilant on the possibility of widespread inflation.

The economy faces difficulties as investment growth slows and industrial production remains sluggish, the People’s Bank of China said in its third-quarter monetary policy report released Saturday. The central bank highlighted an increase in challenges from the previous report in August.

“It should be noted that the current external environment is complex, the economy is under rising downward pressure, and some businesses are faced with operating difficulties,” the PBOC said.

The report signals that the central bank remains committed to a targeted, constrained approach toward easing despite increasing economic risks. The PBOC repeated an earlier pledge to continue to cut the amount of money banks need to put aside as reserves to ease credit.

Monetary policy will “properly handle the short-term pressure,” making sure not to offer excessive funding, while keeping an eye on the risk of inflation quickening or becoming more widespread, the report said.

China’s consumer price index rose to a seven-year high of 3.8% in October and could continue to climb amid surging pork prices. The situation “must be drawn to attention and properly handled,” since it can affect people’s cost of living, the PBOC said, adding that it expects inflation pressure to gradually decline in the second half of next year.

Read: Sputtering China Growth Underscores Need for Trade Reprieve

The bank dismissed concerns of deepening deflation for factories, saying the contraction in the producer price index is mostly due to base effects. It said factory-gate prices should return to year-on-year growth in a few months.

Trade conflicts remain the “main risk” to the global economy, and uncertainties remain despite some recent signs of subsiding tensions, the bank said. Any further escalation could damage global supply chains and impact productivity, the report said, also noting that monetary easing in major economies has added to the fragility of financial markets.

Give these circumstances, China’s position as one of the few major economies that still has room in conventional monetary policy should be “actively maintained,” the PBOC said.

--With assistance from Dandan Li.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Kurt Schussler, Stanley James

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