The case for easing Chinese monetary policy was boosted once again when the nation’s inflation rate slumped to a 19 month low.

Consumer prices inflation (CPI) fell 3.2% year on year in February and is expected to continue falling this year.

This low rate is in sharp contrast with the situation in China 12 months ago, when inflation had reached 6.5% and was a grave concern for economists and forex traders alike.

“Today’s data, with surprisingly low retail sales and output continuing to weaken, point to economic growth further cooling to 8% or lower this quarter,” said Ding Shuang, senior China economist at Citigroup in Hong Kong. Data this month may reveal further worsening if the government fails to cut banks’ reserve requirements for the third time since November, he said.

Forex traders rallied on Asian stocks following a debt deal in Greece and speculation that China’s moderating inflation and growth will lead the ruling Communist Party to do more to boost growth.

China’s government has done a terrific job in controlling inflation, Stephen Roach, former non-executive chairman for Morgan Stanley in Asia and previously the bank’s chief economist, said at a conference in Shanghai yesterday. Concerns that China will have a so-called hard landing are “vastly overblown” even as economic growth becomes more unbalanced, Roach said.

China’s economic growth has levelled  for the past four quarters as Europe’s debt crisis crimped demand for exports and the government limited lending and imposed curbs on home purchases to rein in prices.