Two Australian banks cut their interest rates on Monday, ahead of a possible overnight cash rate reduction by the Reserve Bank of Australia (RBA) in May and amid ANZ Bank's unpopular decision to hike fixed mortgage and small business loan rates by 0.06 per cent on Friday.

St George, owned by Westpac, reduced by 30 basis points its three-year fixed rate home loan to 5.99 per cent. It also brought down to the same rate the rates for two-year and one-year fixed rate home loans by 20 and 15 basis points, respectively. The new rates took effect Monday, April 16.

On the same day, the Bank of Melbourne - a subsidiary of St George - matched the latter's cut by also decreasing its fixed home loan rates to 5.99 per cent for one-, two- and three-year loans. The rate cut was part of a package deal that the lender rolled out on Monday.

Besides offering one of the cheapest mortgage rates outside Internet banks, the Bank of Melbourne also has plans to extend the deadline of April 30 its opening offer of 0.9 per cent less on the standard variable rate. Both measures were put in place by the lender in a bid to gain more customers from other banks whose clients may have been turned off by rate increases despite the different policy direction from the RBA.

"Some of our competitors are moving in the opposite direction, so customers must shop around and look for a better offer," Bank of Melbourne Chief Executive Scott Tanner was quoted by the Herald Sun.

Those customers are heeding the call made by Treasurer Wayne Swan for unsatisfied borrowers to look for other banks with better deals while the big four continue to set their own rates independent of the central bank's policy direction. The big four - Westpac, ANZ Bank, National Australia Bank and the Commonwealth Bank of Australia - cited the higher cost of wholesale funding sourced overseas as the reason behind their recent rate hikes.

"Fixed loans provide customers with the reassurance of repayments locked in for a fixed period," St George Chief Executive George Frazis said as he pointed out the rate cut addresses the issue of price volatility in the home loan market.

He said St George borrowers have the option to split their home loan between fixed and variable rates, but added the rate cut on fixed rate is for a limited period. However, Mr Frazis did not provide a definite timetable until when would the lower rates apply.

Westpac, NAB and CBA earlier said it was still reviewing their rates.

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