By Lucy Craymer 

WELLINGTON, New Zealand--New Zealand on Thursday raised interest rates for the fourth time this year but signaled it wouldn't introduce further increases until the impact of the latest hike has been assessed.

The economy appears to be adjusting to the monetary policy tightening and "it is prudent that there now be a period of assessment before rates adjust further towards a more-neutral level," Reserve Bank governor Graeme Wheeler said in a statement after lifting the cash rate 0.25 percentage point to 3.5%. Rates have been lifted 1 percentage point this year.

The South Pacific nation, with a population of 4.5 million, has been outperforming most major economies thanks to booming demand in Asia, not only for dairy but also for meat exports; a construction boom after a series of devastating earthquakes; and an influx of immigrants. The economy has outpaced the U.K. and U.S. in recent years, expanding 3.3% in the year through March.

The country's central bank this year became so convinced of the economy's health that it began to raise interest rates, something few other developed economies have dared do since the global financial crisis. It stands in contrast to moves by the European Central Bank, which adopted a negative interest rate on bank deposits--a first for such a large central bank.

However, recent data hasn't been as rosy in recent weeks and inflation remains at the lower end of the central bank's annual inflation target of between 1% and 3%.

Mr. Wheeler said headline inflation remains moderate but strong growth was absorbing spare capacity and this was expected to add to non-tradables inflation. "Today's move will help keep future inflation near the 2% target midpoint and ensure that the economic expansion can be sustained," he said.

New Zealand's economy continues to expand, with annual growth of 3.7% expected over the 2014 calendar year as global financial conditions remain accommodative, Mr. Wheeler said. However, he added, economic growth among the country's trading partners has eased slightly in the first half of 2014, seemingly because of temporary factors.

While commodity prices--dairy and timber in particular--have dipped, the New Zealand dollar has remained strong. "The level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall," Mr. Wheeler said.

He noted in June that construction in Canterbury was growing strongly and net immigration was adding to housing and household demand, although house price inflation has moderated further since then.

Write to Lucy Craymer at Lucy.Craymer@wsj.com