The Bank of Korea's increase of the seven-day repurchase rate by 0.25 percentage points came as a surprise because most analysts had expected rates to remain unchanged, the Yonhap News Agency reported.

It was the third rate hike since July when the repurchase rate was raised from a record low of 2 percent, set during the global financial crisis.  The central bank expressed concerns about rising inflation and said it would manage its rate policy by firming up price stability.

Bank Governor Kim Choong Soo said consumer price inflation was expected to grow by 3.5 percent in the first half of 2011 and the rate hike was aimed at curbing inflationary pressure, stoked by rising prices of raw materials and agricultural products.

The government Thursday unveiled a series of measures to tame inflation, among them a freeze of public utility charges and college tuition.