Foreign investment banks forecast inflation in South Korea to stay low next year amid tepid domestic demand and falling global oil prices, a report showed Tuesday.

Nomura projected inflation to reach 1.3 percent this year and 2 percent next year, both below the inflation target band by the Bank of Korea (BOK) of 2.5-3.5 percent. The investment bank, however, forecast inflation to reach 3 percent in 2016.

"We now expect CPI inflation to remain low for a long time due to lower commodity prices, an extended negative output gap and increased pressure on firms to cut their prices to reduce the inventory burden," Nomura economist Kwon Young-sun wrote in a Nov. 11 report.

A separate report compiled by the Korea Center for International Finance also showed that foreign investment banking houses retained a low inflation forecast for Asia's fourth-largest economy next year.

BNP Paribas trimmed its previous forecast of 1.9 percent for 2015 to 1.3 percent, citing a delay in the shift in the country's negative output gap.

Citigroup lowered its outlook for this year to 1.3 percent from 1.4 percent. It also cut its 2015 forecast to 1.9 percent from 2.2 percent on weak energy and agricultural product prices.

Other investment banks, such as Morgan Stanley, Barclays Capital and Goldman Sachs, meanwhile, forecast the government's stimulus efforts and a potential rebound in global oil prices may help ease pressure on falling inflation.

Citing a prolonged weakening of oil and agricultural product prices, the BOK revised down its inflation outlook for this year and next year in its latest forecast made in October.

It put inflation at 1.4 percent for this year from an earlier 1.9 percent while trimming the 2015 outlook to 2.4 percent from 2.7 percent. (Yonhap)