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OSLO (Thomson Financial) - Norway's central bank kept its key interest rate on hold at 5.25 pct, as expected, in a decision economists said recognised that the oil-producing nation's economy remains very strong despite growing indications of a global economic slowdown.

Deputy Governor Jarle Bergo said consumer prices had increased at a faster pace than expected and growth in the Norwegian economy remained strong.

"Inflation picked up faster than expected in December and growth in the Norwegian economy is strong, but in view of the weak developments in the external environment and the turbulence in financial markets, it is now on balance appropriate to leave the key policy rate unchanged," Bergo said in a statement.

Bergo said CPI inflation moved up to 2.8 pct in December, partly reflecting high electricity prices. Other inflation measures ranged between 1.75 pct and 2.5 pct, also higher than expected.

Analysts, reacting to the decision, said it was completely as expected. But they added that the bank's comments were also "hawkish", indicating that if it were not for the deteriorating world economy, rates might have risen.

"The statement said that domestic factors favoured a hike but the weaker than expected external developments justified that the rates be kept on hold," said First Securities economist Bjorn Wilhelmsen. "It's more of a hawkish postion on rates."

Analysts said that if inflation increased in the first two months of this year, there could still be the possibility of future rate rises - depending on the impact of any global economic downturn on the Norwegian economy.

"My best guess is that inflation will push up in January and February," said Nordea Markets senior economist Erik Bruce.

"My forecast is for two more rate hikes, in April and some time in the third quarter. Both of 25 basis points, so for a total of 50 basis points in all," he added.

Analysts said the the rate decision had no immediate impact on the value of the Norwegian crown.

Looking at future developments in inflation, the central bank said in its statement that because many businesses normally changed selling prices at the beginning of the year, price developments in January and February would provide a better indication of the future rate of increase in prices.

On Dec 12 the central bank raised the key sight deposit rate by a quarter percentage point to the present 5.25 pct with Norges Bank governor Svein Gjedrem saying the main reason was that inflation was low but rising.

Norwegian economists said the US Federal Reserve's surprise rate cut on Tuesday had certainly been duly noted by the Norwegian central bank.

However they said that that, if anything, the statement by European Central Bank President Jean-Claude Trichet on Wednesday that the ECB is still focused on fighting inflation was equally influential in their deliberations.

"We might see a change in the Norwegian central bank's stance if the ECB changed their position. So far we expect the ECB to increase interest rates in the latter half of this year...which has been priced into the market," said DnB NOR economist Kyrre Aamdal, just before the rate decision.

The Norwegian central bank said employment had increased markedly and faster than expected. Private consumption also been higher than projected.

But on the other hand, weaker growth among Norway's trading partners would normally have an adverse impact on the Norwegian economy.

"In particular, developments in the US have been weaker than expected and the US Federal Reserve has reduced its key rate markedly," the bank said.

"The growth outlook for the world economy has weakened and equity prices have declined. House prices have fallen in several countries, including Norway."