The Bank of Korea raised its 2013 economic growth forecast by 0.2 percentage points to 2.8 percent and said the country's negative output gap will narrow in the coming quarters after keeping the benchmark seven-day repurchase agreement rate unchanged at 2.50 percent as widely expected.

South Korean President Park Geun-hye, in a separate statement released by her office on Thursday, also played down worries about risks posed by the U.S. Federal Reserve's tapering of its bond-buying stimulus and a possible slowdown in China.

"Unwinding of the U.S.' quantitative easing will be predicated on the Federal Reserve's confidence that the economy is recovering, which is ultimately a good sign for our exports," Park said. "While there is talk about a potential short-term slowdown in China, there is no doubt that the Chinese economy will maintain steady growth."

BOK Governor Kim Choong-soo told reporters at a news conference that growth in the second quarter will be better than the seasonally adjusted 0.8 percent growth recorded in the January-March period.

The resolute views of Park and Kim contrast with growing worries among some market analysts that South Korea faces major headwinds. The International Monetary Fund earlier this week slashed its global growth forecast for this year as momentum in emerging economies such as China is seen to be faltering.

"We feel that BOK growth forecasts are becoming too optimistic and that, on the contrary, chances of another rate cut are rising," RBS economist Erik Lueth said in a report, though he still forecasts the central bank will stand pat until the third quarter of 2014.

The South Korean won and bonds ignored the Bank of Korea's decision to keep rates unchanged, as the move was widely expected. All but one of 24 analysts surveyed by Reuters prior to Thursday's rate meeting predicted the decision, with the remaining respondent forecasting a cut.

Most of the analysts polled agreed the Bank of Korea would leave rates on hold for the rest of the year and more than half agreed the central bank would start raising rates in the second half of 2014 as the economy recovered.

But the central bank cautioned that it does not expect the domestic economy's negative output gap to close until 2015, arguing that its new forecast for 4.0 percent growth next year is partly due to base effects and doesn't suggest a full recovery.

"It would be appropriate that the economy will be improving gradually, as opposed to a sudden surge in momentum," Shin Woon, a director general at the Bank of Korea, said at a press briefing about the revised economic outlook.

(Editing by Eric Meijer)

By Christine Kim and Se Young Lee