Inflation in Norway means rates are likely to rise again

Norway has become the first European country to raise its interest rates since the beginning of the global financial crisis.

The country's central bank raised the cost of borrowing to 1.5% from 1.25% in a widely-expected move.

It said the increase was needed because inflation was higher than expected and unemployment was "considerably lower than previously projected".

Earlier this month, Australia raised its interest rate to 3.25% from 3%.

The move made Australia the first country in the G20 to increase rates since the global economic crisis.

Norwegian central bank governor Svein Gjedrem said: "Activity in the Norwegian economy has picked up more rapidly than expected. Developments indicate that it is appropriate to raise the key policy rate now."

He added that rates would continue to rise "gradually".

Countries across the world have lowered interest rates over the past year to cut the cost of borrowing in at attempt to stimulate economic growth.