The Reserve Bank rendered moot much of the discussion surrounding bank funding costs this month when it chose to hold the cash rate steady.

Citing a slight increase in credit demand, close to trend growth and inflation that remained on target, the RBA defied economists' predictions when it left the cash rate untouched at its February meeting. Most analysts had been tipping a 25bp cut, and the decision was met with a flurry of industry criticism.

1300 Home Loans founder John Kolenda said the RBA was "courting disaster" by leaving rates on hold. Kolenda said economic risks remained weighted to the downside, and that a series of deep cuts was needed to shield the economy.

"This hold decision is a missed opportunity which the RBA will live to regret if the situation in Europe continues to deteriorate while consumer confidence here remains as weak as we have seen in recent months," Kolenda said.

REIQ chief executive Anton Kardash argued that small businesses would be the most severely impacted by the decision.

"Many small businesses have been hamstrung by higher loan rates since the start of the GFC, which is stymieing their potential to grow. Small businesses are often overshadowed by the flashier, more lucrative sectors, but they actually provide half this country's private sector jobs and deserve rate relief as much as anyone else," Kardash said.

Loan Market spokesperson Paul Smith struck a more conciliatory tone, but argued that a rate cut could have eased some of the wariness still felt by consumers.

"We thought the RBA could have applied a 50bp cut this month but they have taken a more cautious approach and still have plenty of room to move. While the fundamentals of the Australian economy remain quite strong and consumer sentiment has been improving, sections of the economy can only benefit from the stimulus provided by lower interest rates," Smith said.

The decision to hold on rates did momentarily pour cold water on the debate swirling around banks' independence from the RBA, and the potential that they may choose not to pass on any future rate cuts.