A fjord in Norway

Norway on Wednesday became the first European country to raise interest rates since the current financial crisis began, lifting its benchmark rate by 0.25 percentage point to 1.5% in response to signs of economic recovery.

The Norges Bank said inflation has been slightly higher than expected. Unemployment is considerably lower than previously projected.

The central bank said the global economy is in a deep downturn, but there are signs of renewed growth. Activity in the Norwegian economy has picked up more rapidly than expected.

The rate setting Executive Board considered the alternative of increasing the key policy rate at the previous monetary policy meeting.

"Developments indicate that it is appropriate to raise the key policy rate now," said Governor Svein Gjedrem.

The Executive Board’s strategy is that the key policy rate should be in the interval 1¼ - 2¼ per cent in the period to the publication of the next Monetary Policy Report on 24 March 2010, unless the Norwegian economy is exposed to new major shocks.

The analyses in its Monetary Policy Report 3/09 indicate that the key policy rate should thereafter be raised gradually, says Governor Gjedrem. 

In early October, Australia become the first G-20 and the first among the mainly developed countries of the Paris-based government think-tank OECD, to hike rates. The Reserve Bank raised the benchmark to 3.25%.

Oil producer Norway with a population of about 4.6 million has a $420 billion Government Pension Fund, one of the world's biggest sovereign wealth funds.