Norway moves swiftly to raise rates in response to 'too high' inflation

* Norges Bank raises policy rate to 4.25%

* Says inflation is too high

* Analysts had expected unchanged rate in May, hike in June

* Currency rallies on the decision (Adds analyst comments, context, updates currency in paragraph 3)

By Nerijus Adomaitis and Terje Solsvik

OSLO, May 7 (Reuters) - Norway's central bank raised its policy interest rate by 25 basis points to 4.25% on Thursday, moving sooner than analysts in a Reuters poll had expected, to quell inflation pressure driven by strong wage growth and high energy costs.

Norges Bank's decision stands in contrast with those of other major central banks, which have argued that more time and data were needed to gauge the impact of the war in Iran on the longer horizon that is relevant for policymakers.

The Norwegian crown strengthened to 10.85 against the euro by 0948 GMT, from 10.92 just before the announcement.

"Inflation is too high and has run above target for several years," Governor Ida Wolden Bache said in a statement, adding it was expected to remain elevated.

Norway's annual core inflation rate came in at 3.0% in March, slightly lower than forecast but well above the central bank's target of 2.0%.

MAJORITY OF ANALYSTS EXPECTED HIKE IN JUNE

The central bank policy committee cut rates twice last year and in December signalled further cuts in 2026, but has since changed course on concerns over domestic inflation as well as higher energy prices due to the Iran war.

A majority of respondents, 15 of the 23 economists polled by Reuters, had expected Norges Bank to keep rates on hold on Thursday, while the remaining eight forecast a quarter-point increase.

All but three respondents had said they expected the central bank to raise rates by the end of June, most of them predicting a rate of 4.25%, but two forecasting 4.50%.

Norges Bank's March forecast pointed to a rate of up to 4.50% by year-end, and a revised rate path forecast will be published in June.

"The monetary policy outlook does not appear to have changed materially since the monetary policy meeting in March, but there is substantial uncertainty about future economic developments," the bank said on Thursday.

The policy committee's statement pointed to a further rate hike this year, Sparebank 1 Chief Economist Elisabeth Holvik said.

"Norges Bank will raise borrowing costs again after the summer, so that the policy rate reaches 4.5% by year-end," Holvik said.

Norges Bank has flagged plans to raise borrowing costs this year in recent months despite criticism from labour unions, which say tighter monetary policy at this time could do more harm than good by driving up unemployment.

OTHER MAJOR CENTRAL BANKS IN WAIT-AND-SEE MODE

The European Central Bank, the Bank of England and the Bank of Japan all debated the merits of raising rates in their recent meetings, but all decided to keep policy steady for the time being.

The U.S. Federal Reserve, which had been in easing mode before the war, also kept policy unchanged, suggesting cuts would be on hold until the energy shock has passed.

Still, markets are pricing in higher rates in the months ahead, with the ECB expected to move in June and a BoE hike priced in by the autumn.

Sweden's central bank earlier on Thursday kept its policy rate unchanged at 1.75%, as expected, but said the risk that the war in the Middle East will lead to higher inflation had increased somewhat.

Australia's central bank on Tuesday raised rates for a third time this year, warning that inflation would remain sticky as the war triggered a global oil shock. (Reporting by Nerijus Adomaitis and Terje Solsvik in Oslo, additional reporting by Balazs Koranyi in Frankfurt, editing by Gwladys Fouche and Tomasz Janowski)