Bank of Korea to stand pat as domestic COVID-19 infections spike

SEOUL (Reuters) - South Korea's central bank is widely expected to keep interest rates at all-time lows on Thursday, as signs of a solid economic recovery are offset by concerns over a recent spike in domestic COVID-19 cases and a slow rollout of vaccines.

All 32 analysts surveyed by Reuters saw the Bank of Korea (BOK) holding its base rate at the current record low of 0.50%.

"Expectations of economic normalisation are growing, with exports posting faster-than-expected growth ... But as concerns about a resurgence in COVID-19 outbreak persist, the BOK will likely maintain its accommodative stance," said Daishin Securities' economist Kong Dong-rak.

Last week, the COVID-19 daily tally hit the highest level in three months as clusters of the virus continued to emerge from small gatherings, mostly in the greater Seoul area.

That somewhat dampened the recent encouraging data showing the economic recovery gathering speed, with strong exports and a pickup in consumption.

Robust demand for chips and petrochemical products helped the nation's exports grow at their sharpest pace in 29 months in March, while inflation accelerated to a 14-month-high.

Over the coming months, most analysts say the central bank's focus will shift toward the growing inflationary pressures, rising asset price and household debt.

Among 29 analysts who provided long-term forecasts, 20 analysts saw BOK raising rates at least once by the end of 2022.

"Considering the political and policy events such as presidential election and the replacement of BOK governor in 2022, a rate hike will take place during the second half of 2022," Yoon Yeo-sam, a fixed-income analyst at Meritz Securities, said.

The BOK currently sees this year's growth exceeding earlier projections of 3%, while the International Monetary Fund upgraded its 2021 growth forecast to 3.6% late last month.

(Reporting by Joori Roh; Editing by Shri Navaratnam)

By Joori Roh and Jihoon Lee