The New Zealand dollar continued to trade at high levels, the central bank said, adding that this remained a headwind to the economy, was unsustainable in the long run, and was expected to gradually moderate in the coming years.
"It's a pretty upbeat statement," said Michael Turner, Strategist, RBC Capital Markets. "Even with the high currency and a slower housing market, they are still confident the rest of the economy is gaining momentum.
Leading the pack
Thursday's rise was the RBNZ's first since July 2010, when it lifted rates to 3.0 percent on signs of recovery from the global financial crisis. But it switched course in March 2011, cutting rates back to 2.5 percent after two major earthquakes in the Canterbury region.
(Read more: Kiwi dollar too strong: New Zealand Finance Minister)
The start of a tightening cycle puts New Zealand well ahead of major central banks in developed economies, who are still grappling with the aftermath of the financial crisis.
The U.S. Federal Reserve is gradually decreasing its massive bond-buying stimulus but remains a long way from raising interest rates, and markets expect the Bank of Japan may have to increase its massive stimulus further to buoy economic growth.
It also takes New Zealand rates above those in neighbouring Australia for the first time in five years, where the Reserve Bank of Australia is expected to keep rates at a record low of 2.5 percent for much of this year as its economy adjusts to the end of a mining investment boom.
The RBNZ raised rates just months after introducing limits to high loan-to-value mortgage lending in October to cool the country's overheated housing market, mainly in two largest cities, Auckland and Christchurch.
House prices have since eased in past months, and the central bank said that the restrictions appeared to be having an faster impact on the market than initially thought.