The issue of Australian banks earning mega profits while borrowers are being slapped with high interest rate cropped up again with the release on Wednesday of a report by the Australian Institute.

The research said the big four earn $6.2 million daily by not passing to borrowers the Reserve Bank of Australia's (RBA) 25 basis points rate cut. The study blames the situation to the big four's domination of the $1.1-trillion mortgage market which allows it to earn big money at the expense of borrowers.

The study reckoned that by 7:30 a.m. of Wednesday, ANZ, Commonwealth Bank, National Australia Bank (NAB) and Westpac earned collectively $4.4 million in profit since the Tuesday announcement of RBA that brought down to 3.5 per cent the overnight cash rate. By 9:30 a.m., the big four's profit went up further to $4.9 million.

So far, after the RBA decision, only the Bank of Queensland has announced rate cuts of 20 basis points which reduced its standard variable rate to 6.91 per cent. ANZ is set to announce its rate review on Friday, while the NAB promised to offer the lowest rate among the big four.

Similar to what happened to the May RBA rate cut in which the banks kept an average of 18 basis points and passed 32 basis points from the 50 basis points cut, analysts foresee the banks keeping between 10 and 15 basis points.

Finance Minister Penny Wong has reiterated Treasurer Wayne Swan's standard message to banks and borrowers every time the RBA issues its rate cut policy.

"The issue here is banks need to do the right thing by their customers.... What we can do is increase competition and we would encourage people to shop around," ABC quoted Ms Wong.

The banks are also expected to mouth their standard line that there is no longer a one-to-one relationship between RBA decisions and interest rates due to the higher cost of funding sources overseas.

Mr Swan has hinted the possibility of more rate cuts, which agrees with analysts' expectations of three more rate reductions for 2012.

Although RBA cited the slowdown in China and the European debt crisis as the main reasons behind its rate cut, it also points to the campaign against the carbon tax as another reason because of the observation that even if Australia's economy is doing well, Aussies do not notice it due to the campaign. He also thinks that Aussies get jitters by following international developments.

"I know that as Australians watch these events unfold overseas they get the impression that all of these things are happening in their back yard and perhaps in their economy, but out economy remains strong," The Sydney Morning Herald quoted the treasurer.

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