NORWAY'S central bank cut the benchmark interest rate by half a percentage point for the second time this month and forecast further reductions as it slashed its forecast for economic growth next year.

The bank reduced the overnight deposit rate to 4.75 percent, the lowest in a year, it said on its Website yesterday. The decision was expected by 10 of 14 economists surveyed by Bloomberg. Two expected a quarter-point cut and two forecast no change.

"The effects of the financial crisis will most likely be more pronounced than envisaged only recently," bank Governor Svein Gjedrem said in the statement. "The slowdown in the Norwegian economy appears to be occurring rapidly and is likely to be pronounced."

The banking crisis, falling home prices and higher borrowing costs have sapped consumer demand and undermined economic growth, even in oil-rich Norway. The benchmark stock index has slumped 54 percent this year and the krone lost almost 4 percent against the euro in September. The central bank cut its growth forecast for next year to 0.25 percent from a June prediction of 2 percent.

"They're obviously acknowledging that growth is going to be a lot lower" than previous estimates, said Sunil Kapadia, an economist at UBS Ltd in London. "But they're indicating they're going to make sure the downside to the currency from rate cuts isn't too great."

The bank expects the key rate to be cut to 4.25 percent next year and 3.75 percent in 2010. Gjedrem said policy makers had considered cutting by a quarter point yesterday.

"The krone exchange rate has depreciated substantially," Gjedrem said. "Should the krone remain weak for long, inflation may remain high."