UPDATE 4-Norway central bank raises rate to 3%, eyes hikes in May and June

(Adds interview with governor)

By Victoria Klesty and Gwladys Fouche

OSLO, March 23 (Reuters) - Norway's central bank raised its benchmark interest rate by 25 basis points (bps) to 3.0% on Thursday to rein in inflation and said it would likely raise it again in both May and June to a peak of 3.5%.

Of the 26 economists polled earlier, 25 had anticipated an increase of 25 bps while one had bet on an increase of 50 bps. The poll had predicted that rates would peak at 3.25%.

"If the economy develops the way we have forecast we will raise the rate in May," Norges Bank Governor Ida Wolden Bache said in an interview with Reuters after presenting the latest policy change.

"The rate path is compatible with the key policy rate also being increased in June and staying at 3.5% through the rest of the year," she added.

Norges Bank said the borrowing cost could also be raised even further if the crown currency proves weaker than projected or pressures in the economy persist, while lower than projected inflation or higher unemployment could lead to a rate reversal.

"Strictly speaking, it is more likely that the rate is increased to 3.75% (from 3.5%) than being cut to 3.25%, but I want to underline that there is considerable uncertainty with regards to how rates will develop," Bache said.

Nordea Markets said Norges Bank was now expected to hike in May and June and possibly also in September.

"The central bank decision for higher rates is mainly due to the weak (crown) and better economic development," Nordea said.

Norges Bank now expects that mainland GDP, a key measure that strips out changes stemming from oil and gas production, will rise by 1.1% this year versus a December forecast of a 0.2% contraction.

The crown initially strengthened to 11.25 against the euro but later slipped back to trade at 11.27 at 1221 GMT.

Norway's core inflation, which excludes energy costs, stood at 5.9% in February, in line with the central bank's December forecast and down from a peak of 6.4% in January, with a price war among supermarkets easing some of the pressure.

The crown has weakened by around 8% this year on a trade-weighted basis compared with Norges Bank's assumptions made in December, fuelling inflation.

The European Central Bank last week raised rates by 50 bps, as did the Swiss National Bank on Thursday, while the U.S. Federal Reserve on Wednesday hiked by 25 basis points. (Reporting by Victoria Klesty and Gwladys Fouche, editing by Terje Solsvik and Hugh Lawson)