Chances are higher for a Reserve Bank of Australia (RBA) overnight cash rate cut in May due to ANZ Bank's decision on Friday to increase its variable mortgage and small business loan rates, economists said on Monday.

Prior to the ANZ announcement, economists and analysts were expecting a larger rate cut of up to 75 basis points, however, the chances of such a large increase decreased with the better-than-expected unemployment figures in March.

ANZ increased by six basis points to 7.42 per cent its standard variable mortgage rate and explained the move, expected to be met with anger by borrowers, to the high cost of wholesale funding. The three other large Australian banks - Westpac, National Australia Bank (NAB) and Commonwealth Bank of Australia (CBA) - are expected to follow ANZ's example as it had done in the past.

Hinting of their next move, CBA said it keeps their rates under review all the time, similar to what Westpac said. NAB said the lender is committed to maintain the lowest standard variable rate for 2012.

Brian Johnson, an analyst of CLSA, said he expects other banks to follow ANZ's move to improve their interest margins.

"The structural cost of funds for the banks will continue to rise of another 12-18 months.... That remains a further divergence between the standard variable rate and the cash rate," The Australian quoted Mr Johnson.

Due to ANZ's lead role in hiking mortgage interest rates, the lender's borrowers gave ANZ the biggest dip in consumer satisfaction in March even if the bank hiked its rates lesser than the rest of the big 4.

Treasurer Wayne Swan, who has been prodding Aussie borrowers to bring their business elsewhere if they are not happy with the interest rates of their banks, said on Saturday that ANZ customers will surely be angered by the lender's move.

"ANZ's decision to whack its customers at a time when many of them are doing it tough flies in the face of recent Reserve Bank statements saying funding costs for banks have eased," Mr Swan said in a statement.

Another factor that may influence the RBA to cut the cash rate in May is the continuous decline of home loan approvals for the second straight month in February.

However, ANZ Chief Executive Officer Philip Chronican justified the bank's move.

"The funding environment changed quite dramatically in late 2011 as a result of the economic and financial crisis in Europe.... This has seen wholesale funding costs rise and competition increase dramatically among banks for deposits," he said in a statement.

Among the groups that have supported the call for the central bank to lower rates rather than retain the current 4.25 per cent interest in May are the Australian Workers Union and the Australian Chamber of Commerce and Industry.

Meanwhile, Westpac said in a statement that it has secured in principle authority to obtain a foreign banking licence to operate in India. An agreement with the Indian Central Bank will open the door for Westpac to offer commercial and wholesale banking operations in India for the first time through rupee-denominated transactions. Westpac initially plans to open the first branch in Mumbai where it has been running for the past five years a representative office.

Westpac Institutional Bank Group Executive Rob Whitfield said the bank opted to open apply for a foreign banking licence in India which is Australia's fifth-largest trading partner and fourth-largest export market.

Westpac has similar branch licences in Beijing, Shanghai, Hong Kong and Singapore.

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