ANZ Bank announced on Friday that it will increase its variable home loan and small business interest rates by 0.06 per cent. The announcement establishes ANZ's independence for the Reserve Bank of Australia's (RBA) overnight cash rate policy which the central bank at kept on Tuesday at 4.25 per cent.

With the hike, ANZ's standard variable interest rate on home loans would rise to 7.36 per cent from 7.3 per cent. However, the bank reduced its three-year fixed rate home loan by 0.15 per cent to 5.99 per cent.

ANZ Australia Chief Executive Philip Chronican explained the decision to increase rates to the intense pressure on retail and business banking margins.

"In December and January we absorbed the additional funding costs in the hope that funding pressures would ease and that no change in lending rates would be necessary," Mr Chronican said in a statement.

"However, margins in retail and business banking have now been squeezed for a number of months and we've taken the difficult decision to pass on part of the higher costs to customers while we also get on with taking action to reshape the bank for tougher times," he added.

With the increase, Australians are now monitoring if the three other large banks would follow the move made by ANZ. Westpac, which offers a similar 7.36 per cent interest rate on variable home loans, has previously hinted it may also hike its rate.

With the move, National Australia Bank kept its promise to offer the lowest standard variable rate among the big four at 7.22 per cent, slightly lower than Commonwealth's 7.31 per cent.

On Thursday, Bendigo and Adelaide Bank and the Bank of Queensland said it would retain its interest rates.

"We understand many homeowners and small business owners are concerned about out-of-cycle interest rates and want to take this opportunity to reassure our customers that we won't be increasing our standard variable interest rates at this stage," Bank of Queensland Managing Director Stuart Grimshaw said in a statement.

The RBA noted on its quarterly monetary statement released on Friday that overall the average interest rate on all outstanding fixed and variable home loans have dropped by 44 basis points since Oct 31, while RBA's interest rate cuts reached 50 basis points for the same period.

The big four had been criticised for not passing in full the RBA cash rate cuts despite making a combined $25 billion profits in 2011. The big four hold more than two million variable rate home loan customers which means that if the lenders increase their rates by as little as 10 basis points, they will make an extra $228 million per year or $19 million a month in revenue, analysts estimated.

With the increase, ANZ said borrowers with an average home loan of $280,000 would need to add $6.50 every fortnight on their payments. Small and medium-sized enterprises would need to shell out an additional $3 every fortnight on an average business loan of $130,000.

ANZ said the higher rates would not immediately affect borrowers since 85 per cent of its clients are ahead on their repayments.

The hike, however, may cause some ANZ borrowers to bring their business to other Australian lenders with lower rates, as was encouraged by the federal government. Mr Chronican acknowledged their move may result in loss of some business.

"While we recognise our decision may leave some people frustrated and even angry, we believe Australia needs safe, well-run commercial banks that aren't a burden on taxpayers and that can continue to lend," he said.

"The alternative of weak, constrained banks that we see in the United States and Europe is a recipe for stagnation and recession in Australia," Mr Chronican emphasised.

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