Norway's central bank raised its key interest rate by a quarter percentage point to 1.5 percent Wednesday, making the oil-rich country the first European economy to boost rates since the height of the global financial crisis.
Norges Bank said in a statement that its decision was due to a sharper-than-expected rise in inflation and lower unemployment.
"The world economy is in a deep slump, but there are signs of new growth," said Svein Gjedrem, governor of Norges Bank. "The Norwegian economy has gotten moving again faster than anticipated."
The Nordic country of 4.8 million, which is not a member of the European Union, escaped the financial crisis largely unscathed thanks to its vast oil revenues, which it invests in a sovereign wealth fund worth $420 billion.
Its unemployment rate of 2.7 percent is among the lowest in Europe. Still, Norway's economy is predicted to shrink 1 percent this year.
Ben May, an analyst with London-based Capital Economics, said the rate hike reflected the fact that Norway's huge oil surplus and fiscal policy had shielded the country from the worst of the global downturn.
"Accordingly, it is unlikely that other central banks in the region will follow suit and hike rates any time soon," he said.
Since October 2008, the bank had cut rates by a total of 4.5 percentage points due to the financial and economic crunch. Rates have held steady at 1.25 percent since June.
The bank said it plans to keep interest rates between 1.25 and 2.25 until March 2010, "unless the Norwegian economy is exposed to new major shocks."