"Gross domestic product growth for 2013 is projected to be 2.8 percent, up from 2.6 percent forecast in April 2013," the Bank of Korea said on its website. For next year, the bank raised the growth forecast to 4 percent from 3.8 percent.
Separately, the bank announced its monetary policy committee decided to leave the benchmark seven-day repo rate unchanged at 2.5 percent.
The committee said South Korea's economic growth is continuing, albeit weakly, "as exports have been generally favorable while indicators of domestic demand have alternated between improvement and worsening." It said the increase in the number of persons employed has accelerated.
In its growth forecast, the bank said private consumption is expected to show a modest expansion this year, aided by increases in real purchasing power and in the size of household surplus.
The bank said exports are forecast to sustain modest growth in line with the gradual expansion of world trade.
Speaking with reporters, BOK Gov. Kim Choong-soo said the Korean economy "is on the gradual recovery track. The second-quarter growth is likely to be higher than a 0.8 percent on-quarter growth in the first quarter," Yonhap News reported.
South Korea is also concerned about the U.S. Federal Reserve tapering off its stimulus program.
However, Kim was quoted as saying the BOK is ready to take action if bond yields rise sharply.
Waiho Leong, a senior economist at Barclays Capital, told Yonhap the interest rate freeze was necessary to prepare for the Fed's stimulus easing and reduce the high volatility of the South Korean won.
The won has declined 5 percent so far this year against the U.S. dollar.