 Bloomberg -- The Bank of Korea kept its key interest rate unchanged and said it expects the economy to contract this year by more than it forecast in May.The BOK board unanimously agreed to hold its seven-day repurchase rate at 0.5 on Thursday, a move forecast by 19 of 21 analysts surveyed by Bloomberg. Two expected a 25 basis point cut.The board will maintain its accommodative policy stance as the economy will likely shrink by more than the 0.2 it forecast in May, and the Covid-19 pandemic will lessen inflationary pressures, the central bank said in a statement after the decision.While consumption has rebounded as virus-related restrictions are relaxed, the pace of recovery in exports and consumption will be slower than previously forecast, the BOK said.The BOKs more downbeat assessment of the economy comes despite an improvement in the jobless rate and recent upticks in confidence among businesses and consumers as authorities manage to keep the domestic spread of the virus under control.Rising home prices, a key concern of the government, may have also made the board hesitant to take further action that would make borrowing costs cheaper and might fuel a property bubble.The central bank noted in the statement that the increase in household loans has expanded materially, while housing prices have generally accelerated in all parts of the country.The challenge for the BOK is to maintain a balance between economic growth and financial stability, said Park Jeong-woo, an economist at Nomura Holdings Inc.South Korea Unleashes New Property Curbs Amid Soaring Prices The BOK has taken a raft of measures to protect the economy amid the pandemic, cutting its key rate by 75 basis points, supplying liquidity and purchasing bonds to stabilize financial markets. The government has also implemented record stimulus in three extra budgets so far this year.Still, analysts are cutting their economic forecasts for South Korea as trouble continues for exports, the countrys biggest growth engine.The central bank will update its growth outlook in August. The BOKs 0.2 contraction forecast in May had assumed the pandemic peaks in the second quarter. Private sector analysts project -0.6.Investors will also be looking for any hints of measures Governor Lee Ju-yeol might consider if risks to markets and the economy rise. Lee said in a post-decision briefing that the central bank buy government bonds if market volatility rises, adding that deploying non-rate tools will depend on how the pandemic situation develops.An earlier version of this story was corrected to give economist Parks current affiliationFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.2020 Bloomberg L.P. 