Bank of Korea says 'low-inflation' era not coming in the next year or two

SEOUL (Reuters) - South Korea's central bank will maintain its inflation target of 2% until the next policy review, as the era of "low-inflation" is unlikely to come in a year or two, the bank's governor said on Wednesday.

"The Bank of Korea (BOK), through consultation with the government, has decided to maintain the current price stability target of 2% until the next review," Governor Rhee Chang-yong said.

Rhee said mechanisms to stabilise high inflation in recent years had been effective. He also said inflation was expected to be stable in the next two years, and other major central banks were also maintaining their targets at 2%.

The central bank will continue to assess if there is any need for improvements in its inflation-targeting system, Rhee said at a press conference held after a bi-annual review of the bank's inflation-targeting monetary policy.

According to the central bank, the economy is "unlikely to enter a low-inflation phase of below 1% in the next year or two," as economic growth is expected to be in the upper-1% range while accumulated price pressure from a strong dollar and climate change persists.

Last month, South Korea's consumer inflation came in weaker than expected at 1.5%, allowing the central bank to lower interest rates for a second straight meeting, to 3.00%, to shore up a slowing economy.

In 2025, consumer inflation is expected to rise to the upper-1% range in the first half and show a stable trend near the target from the second half, the BOK said.

The BOK cited a weaker local currency and higher public utility costs as factors increasing upward price pressures and lower oil prices as a factor offsetting them.

(Reporting by Jihoon Lee; Editing by Lincoln Feast.)