The Reserve Bank is not expected to raise its official cash rate (OCR) from the current 1.75% when it meets next.
However, while it was “highly likely” the OCR would move up in the next two years, it would be wrong to think it was going to increase anytime soon, Mr Alexander said.
“Our view for now remains cash rate rises will start sometime in the first half of 2018 with the cash rate ending that year at 2.5%, then ending 2019 at 3.15%.”
Speculation was growing the Reserve Bank would raise the official cash rate this year because of slightly higher-than-expected inflation, an improving outlook for growth, increasing evidence of capacity constraints and rising inflation expectations, he said.
Those changes in policy expectations were driven by the view the Reserve Bank would need to slow the pace of economic growth by causing mortgage lending rates to rise.
“But here is the thing. They already have.”