The Bank of Korea on Thursday kept its benchmark rate at one.25 percent for February.
It has kept its key rate frozen since October last year when it lowered the rate by 25 basis points to support the domestic economy. The rate is currently at an all-time low.
The central bank was widely expected to cut its benchmark interest rate on Thursday in a bid to offset the economic impact caused by the coronavirus outbreak.
But despite the worsening business sentiment, the BOK decided to freeze the interest rate as lower rates have risks of their own.
The decision is also a reflection of the worries over the country's growing household debt levels.
Also announced on Thursday, the central bank forecast the local economy to grow by 2.1 percent this year, down 0.2 percentage points from what it had forecast last November.
The downgrade reflects contracted business activities both at home and abroad due to the coronavirus outbreak.
The central bank's monetary policy board noted in a statement that the country's economic growth rate has slowed down.
It said, due to the spread of COVID-19, consumption has contracted and exports have slowed.
Bank of Korea Governor Lee Ju-yeol said in a press briefing that there is a possibility that the South Korean economy could contract in the first quarter of this year due to the outbreak.
"We expect the impact of the disease to be concentrated in the first quarter, so there is a possibility of negative growth in the first quarter."
The BOK lowered its expected private spending growth in the first half of the year from 1.9 percent to 1.1 percent on-year.
But the central bank raised the figure for the second half of the year from 2.2 to 2.6 percent.
Lee said that the Bank of Korea's forecasts assume that the outbreak will peak in March and then settle down.
The central bank kept its economic growth forecast for 2021 at 2.4 percent.
Eum Ji-young Arirang News.