When the Reserve Bank of Australia (RBA) was considering another round of overnight cash rate cut, Aussie banks were hinting of not passing in full to borrowers any rate reduction the central bank would likely make. Now that the RBA has stayed the current rate of 4.25 per cent, banks are even mulling a rate increase.

At least one of the big four is on the verge of announcing a possible rate hike after ANZ Bank came out with a policy that it would announce lending rate decisions independent of RBA policy. ANZ is scheduled to publicise it interest rate policy on Friday, Feb 10, which analysts believe would be to increase lending interest rates.

"Offshore funding accounts for 20 per cent of their lending. It costs much more than it did in December. What it's done to their total costs is hard to tell. At a minimum it has probably added 0.10 percentage points," The Sydney Morning Herald quoted BBY banking analyst Brett Le Mesurier.

The trend made by ANZ is declaring independence from RBA decisions would likely be followed by other Australian banks, although the National Australia Bank (NAB) promised on Tuesday to offer the lowest mortgage rate among the big four.

"We acknowledged a tougher world economy is presenting uncertainty for many customers. NAB will provide that certainty by announcing our ongoing commitment to having the lowest of the big four standard variable rates," NAB Personal Banking executive Lisa Gray said.

Australian banks have cited the higher cost of offshore funding as the reason why the lenders could not pass in full future RBA rate cuts. It is the heavy reliance of Australian lenders on offshore funding that makes it vulnerable to future market shocks caused by developments in the European debt crisis, rating agency Moody's Investors Service said on Tuesday.

The RBA shocked the financial markets when it defied expectation and favoured retaining the benchmark interest rate rather than lower it.

Among those disappointed by the RBA decision were mortgage holders and the manufacturing sector which is suffering from the impact of the strong currency and was looking forward to a rate cut. The Australian Workers Union (AWU) warned of more job losses due to the RBA decision.

"The RBA has shown it is out of touch with what is happening in the real economy," AWU National Secretary Paul Howes said.

Treasurer Wayne Swan defended the RBA decision. He said the decision to stay the rate is part of the central bank's sound economic management to delivery strong growth on one hand and contain inflation on the other hand.

Aware of the plan by some Australian banks to even increase interest rates despite the RBA decision, Mr Swan warned that clients could instead move their business to another bank that would not raise rate as he encouraged a more competitive banking system.

However, he admitted the government could not do anything if the lenders opt to hike interest rates.

"We don't regulate interest rates in this country, we haven't done so in a very long period of time, but that's why the government has been so determined to put in place a series of reforms which empower consumers to deal with banks if they are unhappy with what the bank is doing," Mr Swan was quoted by The Australian.

Among these reforms is the abolition of the mortgage exit fees which allow borrowers to leave a bank without being made to pay an exit fee.

With the big four hinting of even a rate increase, Greens MP Adam Bandt said he would push for a legislation that would force banks to offer tracker mortgage products that have interest rates based on RBA decisions.

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