* Hikes key policy rate to 1.5% from 1.25% previously
* Norway is only G10 country to still hike rates
* Cites Middle East events, Brexit among outlook risks
* Crown currency initially strengthens before fading (Adds quotes, background, updates currency)
By Terje Solsvik and Nerijus Adomaitis
OSLO, Sept 19 (Reuters) - Norway’s central bank raised its main interest rate by a quarter percentage point on Thursday, moving rates in the opposite direction to other developed economies, but said further policy tightening had become less likely amid a global slowdown.
Norges Bank increased its key policy rate to 1.5% from 1.25%, in line with the forecasts of 15 out of 29 economists in a Reuters poll. The remaining participants had expected an unchanged rate.
Thursday’s policy tightening was Norway’s fourth in 12 months amid a domestic boom driven by rapid growth in oil industry investments, a weak currency and rising government spending.
As a result, Norges Bank has pressed on with rate hikes even as all G10 central banks shifted to dovish positions or stayed on hold.
“The Executive Board’s current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at this level in the coming period,” central bank Governor Oeystein Olsen said in a statement.
Norway’s crown currency initially strengthened to 9.8124 against the euro from 9.8820 just ahead of the 0800 GMT announcement, but faded to 9.8537 at 0832 GMT.
“The rate path is marginally lower from June and signals that Norges Bank is basically done hiking rates. However, they maintain a small hiking bias indicating that a hike is more likely than a cut next year,” Nordea Markets economist Joachim Bernhardsen wrote in a note to clients.
The central bank’s revised 2019-2022 projections showed the policy rate would most likely peak at 1.5%, albeit still with a chance of a further hike in 2020.
“Within 2020, there is maybe a 40% probability of another rate hike,” Danske Bank economist Frank Jullum said.
The Norwegian economy is set to grow by 2.7% this year, Norges Bank predicted, the most rapid expansion since 2012, while 2019 core inflation will reach 2.3%, exceeding the central bank’s target of 2.0%.
Norway’s rate hike came after the U.S. Federal Reserve on Wednesday cut rates for a second time since July and the European Central Bank last week brought its policy rate deeper into negative territory while pledging infinite stimulus.
Norges Bank had acknowledged in August that its longer-term rate outlook was becoming less certain as a result of the impact from global trade wars and the risk of a no-deal Brexit. (Additional reporting by Victoria Klesty, editing by Gwladys Fouche, Angus MacSwan & Simon Cameron-Moore)