The Norwegian central bank raised its policy rate by 0.25 percentage point to 1.0%, as expected, and said it would most likely raise the rate further over the next half-year.

The U.S. dollar dropped against the Norwegian krone immediately after the monetary policy decision and was trading 0.71% lower at 8.44 kroner as of 7:17 a.m. ET on March 21.

Norges Bank said the Norwegian economy has expanded at a stronger pace than expected, with capacity utilization now appearing slightly above a normal level. However, the central bank flagged risks posed by weaker growth prospects and lower interest rates abroad.

"Our current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of the next half-year," Governor Øystein Olsen said. The central bank expects inflation to be close to target in the years ahead, while unemployment is expected to remain low.

The central bank last raised its policy rate to 0.75% from 0.50% on Sept. 20, 2018, marking its first rate hike since March 2011.

As of March 20, US$1 was equivalent to 8.54 Norwegian kroner.