South Korea's central bank raised its growth forecast for this year on Thursday, despite tensions over Pyongyang's increasing missile and nuclear threats.

The Bank of Korea said it expects Asia's fourth-largest economy to expand three percent in 2017, up from its earlier prediction of 2.8 percent.

"The local economy will continue sound growth," the central bank said in a statement, adding it expects moderate recovery in exports and domestic consumption.

It forecast expansion of 2.9 percent in 2018.

The revision is in line with the outlook of the International Monetary Fund, which earlier this month raised its prediction for South Korea's 2017 GDP growth to three percent, citing the pace of recovery in global investment and trade.

Moody's Investors Service said Wednesday it was maintaining South Korea's record-high AA2 credit rating as it expects the country to post growth of two to three percent over the next five years.

But it noted that the escalating tensions over North Korea's missile and nuclear threats will weigh on the South's creditworthiness.

"Uncertainty over the potential for military conflict on the Korean Peninsula is rising with the increasingly strident rhetoric," it said in a report.

"A military confrontation would have significant negative credit implications."