ⓒYONHAP News

For the first time ever, the Bank of Korea(BOK) raised its key interest rate by 50 basis points as it seeks to contain rapid inflation.

The central bank's monetary policy board held a rate-setting meeting on Wednesday and decided to raise the benchmark rate from one-point-75 percent to two-point-25 percent.

It is the first “big step” rate hike in the bank’s history.

It is also the first time the bank has upped the rate three consecutive times after it was raised by a quarter percentage point in both April and May. Since 2017, the BOK has not held a monetary policy board meeting in March, June, September and December.

Prior to Wednesday's meeting, the key rate had been elevated five times in the span of ten months to hit one-point-75 percentage points amid growing concerns over inflation’s impact on the economy.

The consumer price index hit six percent in June, the highest level in over 23 years, driven by soaring global raw material and crop prices.

Expected inflation, measuring consumers’ estimates on price increases in the next 12 months, also hit a ten-year high in June at three-point-nine percent.

The BOK's "big step" also came amid concerns that the U.S. benchmark interest rate may surpass South Korea's if and when the Federal Reserve takes its own "big step," or even "giant step," of a zero-point-75-percentage point hike, which will further prompt flight to investments with higher returns.

In a press briefing following the central bank’s rate-setting meeting on Wednesday, BOK chief Rhee Chang-yong said that the bank will likely maintain its current stance on rate hikes for the time being, noting that one or two more rate increases are likely before the end of this year.

Rhee explained that as long as inflation follows expectations, incremental rate hikes of 25 basis points is the optimal strategy.

Responding to questions about market forecasts, he said it is reasonable to predict that the central bank will raise the rate to two-point-75 to three percent by the end of the year, but added that it would depend on several factors such as the global trend of interest rates and oil prices.

Rhee also said that inflation will likely peak either late in the third quarter or early in the fourth, though it is impossible to say definitively amid growing uncertainty at home and abroad.

President Yoon Suk Yeol also weighed in on Thursday, saying the central bank's rate hike, an inevitable measure in curbing inflation, must not place a burden on the socially vulnerable.

Presiding over a second session of the government's emergency economy and livelihood meeting on Thursday, Yoon cast concerns over small business owners, homebuyers and young investors struggling to make their monthly debt payments.

Yoon pledged an active state response through the utilization of its financial resources, stressing that the collapse of the economic situation of ordinary people will cause the foundation of the national economy to crumble.

Some measures the president pledged include the Korea Asset Management Corporation purchasing small business debts through bonds to offer them maturity extension or interest reduction.

Yoon also promised to apply a loan conversion system for mortgage lenders to help bring down interest and ease the burden of a rate hike for long-term loans.