The logo of the Bank of Korea is seen in Seoul, South Korea, November 30, 2017. REUTERS/Kim Hong-Ji

By Cynthia Kim and Jihoon Lee

SEOUL (Reuters) -South Korea's central bank kept policy interest rates unchanged on Thursday as a resurgence in home prices and a declining currency reduced the scope for further easing, but left the door open for another cut amid softening growth.

The Bank of Korea's seven-member monetary policy board voted to keep its benchmark interest rate unchanged at 2.50%, an outcome expected by 33 of 35 economists polled by Reuters.

The median expectation is now for one more cut in November and then a prolonged pause, as analysts expect policymakers to put more emphasis on managing risks related to financial stability amid an overheating housing market and uncertainty over a U.S. trade deal.

"The Board will maintain its rate cut stance to mitigate downside risks to economic growth and adjust the timing and pace of any further base rate cuts while closely monitoring changes in domestic and external policy conditions and examining the resulting impact on inflation and financial stability," the BOK said in a statement.

South Korean policymakers have been taking a tactical approach to supporting an economy hit by former President Yoon Suk Yeol's martial law decree and trade uncertainties by cutting interest rates a cumulative 100 basis points since October 2024.

Yet the potential for renewed home price upswings is problematic for any further easing, particularly as the won faces downward pressure against the dollar, analysts say.

South Korea is projected to post the slowest economic growth this year since 2020 when the economy contracted by 0.7% amid the pandemic, as "the impacts of U.S. tariffs on exports are likely to expand gradually," the bank said in the statement.

The construction industry, traditionally a driver of economic growth, is in a downturn due to rising costs of labour and equipment, leading to a shortage of new housing supply in Seoul.

While that has pushed home prices higher, it has also slowed economic activity.

"The broader outlook is soft. The property downturn, subdued export demand, and tighter fiscal policy all point to slower growth ahead," said Gareth Leather, an economist at Capital Economics, who was only one of the two economists who expected the bank to cut rates on Thursday.

He now expects a reduction on November 27 when the bank next reviews policy.

The won declined to 1,435.8 per dollar after the policy statement, its weakest level since early May.

South Korea's rates-sensitive three-year treasury bond futures turned higher to trade up 0.09 points at 106.99 as of 0135 GMT.

The won was quoted at 1,433.3 per dollar, after falling 0.24% earlier to 1,434.5.

The Lee Jae Myung government announced its third property market curbs in just four months this month as the price-to-income ratio of an apartment in Seoul exceeded both London and Sydney.

(Reporting by Cynthia Kim; Editing by Sam Holmes)