ⓒKBS News

South Korea's central bank voted to raise the country's policy rate by point-25 percentage point to one-point-75 percent.

Friday's hike had been widely anticipated as the Bank of Korea(BOK) indicated numerous times in recent weeks that it was ready for tighter monetary policy.

In a news briefing following the rate decision, BOK Governor Lee Ju-yeol explained that financial instability in emerging markets has stabilized while domestically, there has been a slight improvement in job growth.

"Monetary policy remains expansionary despite [today's] modest increase... It's at a level that the [Korean] economy can endure."

Despite the bleak economy, household debt continues to reach new highs, and now stands at more than one-thousand-500 trillion won.

The widening rate gap between South Korea and the U.S. -- with South Korea's higher -- has also fanned concerns of possible capital outflow.

The bank had been under pressure from the government, which deemed that low interest rates were driving up real estate prices. Lee now turns to the Finance Ministry, saying that fiscal policy isn't expansionary enough.

"Based on the results to date, the government's fiscal policy hasn't been expansionary. There is a need to manage fiscal policy in an expansionary manner."

The wide consensus remains that the central bank will keep the key rate steady in the immediate future considering the weak economy.

Last month, the BOK lowered its 2018 growth forecast for South Korea to two-point-seven percent from two-point-nine percent. It was the second downward forecast after the central bank reduced its outlook from three percent in April.