The Bank of Korea (BoK) faces a delicate balancing act as it wards off damage from the MERS outbreak, with economists divided on whether more monetary stimulus will be needed to prop up South Korea's economy.
Worries that the growing number of Middle East Respiratory Syndrome (MERS) cases would hit growth prompted the central bank to cut its benchmark rate by 25 basis points to a record low of 1.5 percent at its policy review on Thursday, sending stocks modestly higher and pushing the Korean won lower against the greenback.
"We decided to cut rates today in a preemptive move to contain the economic fallout from MERS," BoK Governor Lee Ju-yeol said at a news conference.
Asia's fourth largest economy reported 14 new cases of MERS on Thursday, bringing the total number of infections to 122 - the highest rate outside Saudi Arabia. Nine people have died so far, and the majority of cases are confined to Seoul where patients have contracted the illness in hospitals.
Read MoreMERS: What you need to know
"Tepid consumer confidence might have taken another dent given the recent spread of the MERS virus, and so the rate cut serves as a pre-emptive move to cushion confidence," Mizuho Bank said in a note Thursday.
Indeed, the central bank warned that consumption appeared to have fallen following the outbreak, just a week after data showed May confidence hitting a seven-month peak.
A rate cut should also see the Korean won weaken further and that should provide some relief to exporters, noted James P. Rooney, chairman of Advanced Capital Partners. Exports, which make up almost half of the economy, dropped to a near six-year low in May, following the currency's 9 percent appreciation against the greenback during the past year.
"Even before the MERS case, we were expecting a rate cut to defend the currency," said Michael Na, Korea strategist at Nomura. Compared to Japan, South Korea's biggest export rival, the won has also strengthened 9 percent during the past twelve months.
A weaker currency could also help mitigate the tourism fallout, Rooney added. Tourism makes up a significant chunk of Korea's service sector, and it's expected to suffer the most as a result of the MERS scare.
The rapid spread of the illness has sparked public alarm in the country, with schools closed, public events called off, and thousands of visitors cancelling travel plans. Neighboring Asian countries have taken precautionary measures, such as screening travelers arriving from Seoul.