South Korea's central bank said Wednesday it set the country's annual inflation rate at an average 2 percent over the next three years, sharply lower than the current target band, calling it an optimal target to support growth while also ensuring stability.
  

"The inflation target has been set after considering recent movements in the country's underlying inflation, optimal inflation level and outlook on future consumer prices," the Bank of Korea said in a press release, adding the target rate has also been closely discussed with the government.
  

The 2-percent target marks a significant cut from a target band of 2.5 percent to 3.5 percent for the 2013-2015 period.
  

However, it will mark a rise from the actual inflation that remained below 1 percent for 11 consecutive months until a 1-percent on-year gain in November, which marked a 12-month high.
  

So far, increases in consumer prices have remained below the 2013-2015 target every month.
  

A senior official from the central bank explained that the low growth rate, as well as a cut in the inflation outlook for the next three years, was partly due to a dip in the country's growth potential.
  

"The country's growth potential is believed to have dropped to between 3 and 3.2 percent from the mid 3-percent range prior to the 2008 financial crisis," BOK Deputy Gov. Suh Young-kyung said at a press briefing on Tuesday.
  

The BOK earlier forecast consumer prices to increase 1.7 percent next year.
  

The deputy governor noted inflation may even fall short of the 1.7-percent forecast, at least in the first half of 2016.
  

"There is a possibility (a rise in) consumer prices may further deviate from the new target next year due to low oil prices. We may continue to see low consumer price inflation caused by supply shocks, but believe the country will move away from such circumstances in the second half of the year and move toward a 2-percent rise in inflation," Suh said.
  

A deviation of more than 0.5 percentage point from the target for more than six months will result in an emergency press conference by the BOK governor to explain the reasons for such a deviation and possible changes to the bank's inflation outlook, according to the deputy governor.
  

She also noted a single figure inflation target, instead of a target range used in previous outlooks, means more accountability.
  

Still, a deviation from the target may not directly result in a change in the bank's monetary policy.
  

"The 2-percent target only means the BOK will use its monetary policies to meet the 2-percent target in the long-run. It does not mean the BOK will move mechanically to meet the target," an official said. (Yonhap)