Interest rates are not likely to increase as much as many analysts are predicting, according to the head of the Commonwealth Bank.

Chief executive Matt Comyn says rates will increase but are unlikely to hit the 2.5% increase some are predicting by the end of the year.

Comyn says that would be the fastest pace of rate increase in decades and analysts have gotten well ahead of themselves in predicting what the rate of increase is likely to be. He predicts a cash rate closer to 1.3% by the end of this year, before moving to a more modest 1.6% mid-next year.

Comyn says the increases will still have a modest impact on the housing market. “One of the key questions in our mind is: where does the cash rates settle? And I think there’s actually quite a divergence across the market in terms of what the market is pricing for expectations versus what we think is going to occur.”