By Balazs Koranyi and Camilla Knudsen

OSLO, Feb 14 (Reuters) - Norway is in no hurry to raise interest rates and could even cut them if inflation falls too low or its currency firms up too much, its central bank governor said on Thursday.

When Europe's economic storm clouds begin to clear, the upward pressure on the Norwegian crown will ease, and only then will interest rates rise gradually toward normal levels, Oeystein Olsen said in his annual policy address.

The bank is also willing to overlook inflation undershooting its target for years to come as the underlying economy remains healthy, with incomes, output and employment all rising, Olsen added.

'We will not lose sight of the inflation target,' Olsen said. '(But) in today's situation, it is appropriate to use a few years to bring up inflation.'

Norway was Europe's economic star in 2012, logging growth of 3.2 percent even as the euro zone contracted by 0.5 percent.

Growth was so strong that Norges Bank had promised to hike rates at some point between March and September this year to cool key sectors, particularly the overheating property market.

But a mixed ending to 2012 has shaken up expectations and the market now doubts Olsen's resolve to lift rates as Norway's normally resilient economy has felt the impact of Europe's ills.

Pressure on the currency also remains high, with the trade weighted I44 unit, a key measure watched by the central bank, hitting an all-time high this week as investors pour into its AAA-rated assets.

Indeed, instead of a rate hike, the bank is even ready to cut rates if the crown gets too strong because that could lower inflation to a dangerous level.

'Such developments would be counteracted by monetary policy measures,' Olsen said. 'We still have room for manoeuvre in interest rate setting - in both directions.'

'We do not intervene in markets,' he said. 'So yes, we will meet that with changes in the interest rate, if it gets too strong, but we don't qualify what that means. We don't have a special target for the exchange rate.'

Norway's key rate stands at 1.5 percent and analysts now expect one 25 basis-point hike toward the end of the year although forecasts are getting increasingly pushed out as recent data, including gross domestic product, unemployment and retail sales, have surprised on the weak side.

The bank's next meeting is on March 14 and Olsen said he would not revise his policy outlook or release new signals before then. The bank targets inflation at 2.5 percent whereas its key inflation measure is languishing at 1 percent.

STRESS

Although Norway is a top economic performer, Olsen said stress was building up as it grows too heavily reliant on its lucrative oil industry and people enjoy the enormous wealth generated by the offshore sector.

'Growth is being supported by immigration and employment growth, and not by increased productivity,' he said.

Productivity levels when adjusted for the effect of immigration have been stagnating for the past five years, and growth in fixed capital investment per person has fallen close to zero.

'Total labour input is considerably higher in Sweden, Finland and the U.S. than in Norway,' he said. 'We work less than the OECD average.

'Generous transfer schemes and other aspects of our welfare system induce many to exit the labour market wholly or partially.'

Curbing the oil sector was not an option, he said, but the government needs to keep spending in check, even when it runs huge budget surpluses, and it needs to reforms social benefits to get people back into the labour market.

(Reporting by Balazs Koranyi; Editing by Hugh Lawson) Keywords: NORWAY RATES/

(Balazs.Koranyi@thomsonreuters.com)(+47 22 93 69 62)(Reuters Messaging: balazs.koranyi.thomsonreuters.com@reuters.net)

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