Consumer sentiment in South Korea improved to the highest level in seven months in May, central bank data showed Tuesday, in the latest sign of recovering domestic demand.

The overall consumer sentiment index reached 105 in May, up from 104 in April and gaining for two months in a row, according to the Bank of Korea. A reading higher than 100 indicates that optimists outnumber pessimists.

After dropping sharply in the aftermath of the deadly ferry sinking in May last year, the monthly index has been zigzagging as government stimulus failed to firmly boost growth.

The index is in line with the central bank's assessment of improving economic sentiment. In its policy decision text for May, the monetary policy committee noted that while "domestic demand-related indicators have fluctuated from month to month, the sentiments of economic agents have improved."

Citing a steady improvement in such sentiment as well as expectations for economic recovery, the BOK left the base rate unchanged at a record low of 1.75 percent earlier this month.

Consumers' inflation forecasted for the next one-year period came in at 2.5 percent, staying unchanged from the previous month.

The projection matches the bottom line of the central bank's 2.5-3.5 percent target band for the years 2013-2015.

The CSI survey of 2,200 households across the nation was conducted between May 11 and 18. (Yonhap)