"The turbulence in financial markets has intensified and external growth is now expected to be clearly weaker, particularly in the euro area," said Jan F. Qvigstad, deputy governor of Norges Bank, in a statement.
"In order to dampen the impact on the Norwegian economy, the Executive Board has decided to lower the key policy rate."
On cutting its key rate for the first time since 2009, the central bank said the country's economy remained robust, driver mainly by petroleum investment, but that several indicators pointed to a slowdown in growth.
With the European banking systems and credit markets destabilized by the ongoing debt crisis, market funding had become "more expensive and less accessible for Norwegian banks."
“In order to guard against an economic setback and even lower inflation, we are of the view that a reduction in the key policy rate is now appropriate”, said Qvigstad.