South Korea's parliamentary research agency on Tuesday called on the central bank to lower the key interest rate further from its current record-low level, citing deepening concerns about deflation risks amid plunging oil prices.

"If current conditions do not improve and the South Korean economy falls into deflation, all policies will be incapacitated," the National Assembly Research Service said in a report.

"The key rate should be further reduced before the country lapses into a state of deflation," it said, pressing for "an assertive monetary policy by the Bank of Korea (BOK)."

The state-run Korea Development Institute (KDI) recently also urged the BOK to lower the key interest rate to avoid Japan-style economic stagnation.

The KDI claimed that low inflation rate could end up causing side effects to the macroeconomic situation by increasing the actual debt burden for households and making it harder for the government to collect taxes.

Falling consumer prices have emerged as a potential problem for the country's economy, with the government and think tanks setting low projections for inflation next year.

The prevalent concerns have been that inflation in Asia's fourth-largest economy may be restricted to the 1-percent range for the third straight year in 2015. The Korea Economic Research Institute and the KDI were the only think banks to forecast inflation figures in the 2 percent range.

The finance ministry projected next year's inflation at around 2 percent, up from the 1.3 percent forecast for this year, but the overall figure is likely to stand at 1.4 percent when the government's planned 2,000-won hike in cigarette prices is excluded.

The BOK itself slashed its consumer prices outlook in October to 2.4 percent from the previous 2.7 percent, and also hinted at further cuts in line with falling oil prices. The central bank, however, brushed off deflation fears.

"Calls for the central bank to act against deflation concerns are excessive," BOK chief Lee Ju-yeol said earlier this month. "The reason the economy is not livening up despite two rate cuts and various government policies is due to structural issues that are firmly rooted."

The finance ministry's take on the deflation concerns was concurrent with that of the BOK, but at the same time, it cautioned that the government needs to keep an eye on the direction in which the economy is headed.

"There has been no precedent in the world for low oil prices resulting in deflation. The deflation concerns seem to be overblown," the ministry said. "We still need to remain cautious that (falling oil prices) could exacerbate low inflation and excessive current account surplus in the short term." (Yonhap)