(Adds details, quotes; updates crown exchange rate)
By John Acher and Wojciech Moskwa
OSLO, Oct 29 (Reuters) - Norway's central bank cut its main interest rate by half a point to 4.75 percent on Wednesday and signalled more moderate cuts ahead to help shield the oil-fuelled economy from the worst ravages of the global crisis.
It was the second cut this month in Norway, following the bank's half-point decrease on Oct. 15, as the national economy showed signs of a marked slowdown due to the credit crisis accompanied by a falling oil price.
"These two half percentage points combined with the drop we have had in the crown is a rather strong diet," central bank Governor Svein Gjedrem told a news conference.
But some economists said the bank's outlook for rates -- including a single 25 basis point cut by next March -- meant less easing than expected. They said it showed the central bank remained worried about above-target inflation.
"The effects of the financial crisis will most likely be more pronounced than envisaged only recently," Gjedrem said.
In a new monetary policy report, the bank lowered its forecast for mainland gross domestic product growth this year to 2.5 percent from a previous 3.25 percent seen in June, and cut its 2009 mainland GDP forecast to 0.25 percent from 2.0 percent.
The bank said that it had considered but rejected the alternative of cutting rates by 25 basis points instead of 50.
Gjedrem said it considered the smaller cut largely because of a steep recent drop in the crown. "We do not want a development of the crown rate that creates doubt about the inflation target of 2.5 percent in the medium term," he said.
The bank said the deposit rate was likely to be in a range of 4-5 percent until late March. Analysts generally interpret the mid-point of the range to be where rates are headed.
In the monetary policy report, the bank lowered its trajectory for interest rates ahead and said it saw the deposit rate bottoming out at 3.76 percent in June 2010.
MARKET RATES ADJUST
The bank called it "a fairly rapid reduction in the key policy rate to a lower level" than forecast in June.
But some economists had expected the bank to draw an even lower trajectory for rates ahead, some seeing a bottom below 3 percent, and market interest rates rose after the announcement.
"There is a very sharp rise in FRA interest rates," said Fokus Bank chief economist Frank Jullum, adding that Norges Bank's main scenario was one of an "ordinary downturn...with a cautious adaptation of rates" and not of a full-blown crisis.
Nordea Markets senior economist Erik Bruce said: "The central bank's focus is still on fighting inflation."
The bank said it was closely monitoring the crown exchange rate after a substantial depreciation. "Should the crown remain weak for a long period, inflation may remain high."
The Norwegian crown initially strengthened but weakened back to 8.5900 to the euro by 1536 GMT from around 8.57 before the announcement.
Inflation has overshot the bank's 2.5 percent target since July, with the annual rise in core consumer prices at 3.1 percent in September but Norges Bank said "the outlook suggests that inflation may edge down ahead."
"We are closely watching the outlook for inflation and (economic) activity." Gjedrem said "If the outlook changes in relation to the picture we have tried to draw, it will be of significance for rate setting."
He said the bank had seen some movement towards more normal conditions in the bank market, money market and currency markets, but he said it would take time to regain normalcy.
He said measures taken by the government and the bank's own liquidity management had helped dampen market interest rates.
Seven out of 11 economists surveyed by Reuters had expected the half-point cut, and two had forecast a 25 basis points cut.
The cuts have ended more than three years of monetary tightening in Norway and were the first easing since 2004.
(Additional reporting by Aasa Christine Stoltz, Terje Solsvik, Ole Petter Skonnord, Richard Solem, Joergen Frich and Alister Doyle) (Reporting by Oslo newsroom, editing by Stephen Nisbet)