South Korea central bank unexpectedly lifts interest rate

South Korea's central bank surprised markets on Thursday by raising interest rates to contain inflationary pressures, as record food prices and volatile commodities prices threaten an escalation in inflation.

A media official at the Bank of Korea announced the decision by its monetary policy committee to raise the 7 day repurchase agreement rate by 25 basis points to 2.75%, after holding rates steady in December.

Fourteen out of the 16 analysts polled by Reuters had expected the Bank of Korea to leave rates unchanged after lifting the base rate twice in 2010.

The rate decision cames just ahead of the government's release of a set of anti-inflation measures due at 0200 GMT.

All eyes will be on Governor Kim Choong-soo's comments during a news conference from 0220 GMT for clues on the timing of its next rate move. Expectations have been mounting that the central bank would bump up rates from as early as February.

The Bank of Korea in December forecast consumer inflation to quicken to 3.5% this year from last year's 2.9%, but analysts see the 2011 reading topping 4%, or the upper end of the central bank's target of 2% to 4%.