Treasurer Wayne Swan has urged people to take their home loans from the big four banks and take them to smaller lenders with lower interest rates.

His comments were made as none of the big banks - the ANZ, Westpac, NAB or the Commonwealth - moved their rates despite the Reserve Bank lowering official rates on Monday.

The RBA handed borrowers their second cut in two months, dropping the official cash rate to 4.25 per cent.

The decision should bring savings of around $50 a month on a $300,000 mortgage if passed on to borrowers.

So far Bank of Queensland, Members Equity and the NSW Police Credit Union have announced they will pass the cut on, but the big four banks have remained silent.

Mr Swan says the Government, by banning exit fees, has made it easy to change lenders and people can find rates much lower than the "around 7.5" per cent offered by the big four.

"You could go down the road to the ME Bank and get a loan for 6.74 per cent; you can go down the road to the Bank of Queensland and get a loan for about 6.5 per cent," Mr Swan told reporters in Canberra.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 5 minutes 7 seconds 5 m Europe crisis fails to halt Australian economy ( Peter Ryan ) Download 2.3 MB

He also suggested borrowers go to credit unions or other financial institutions "that are more competitive".

Mr Swan said the big four are "among the most profitable banks in the world".

"That's one of the reasons we worked so hard to abolish mortgage exit fees on new loans," he said.

"Customers and businesses will have a very dim view of the banks if they fail to pass through this rate cut in full."

Mr Swan also noted the Government had passed legislation banning price signalling by the banks and began support programs for smaller bank lenders and credit unions to ensure they can compete with the big four.

Cost vs customers

Retailers, the Australian Chamber of Commerce and Industry and the ACTU also are urging the banks to act.

Bank of Queensland chief executive Stuart Grimshaw says signs of financial stress among customers led the bank to drop its standard variable rate.

"We know it's pretty tough out there when people just aren't spending on what we call the non-discretionary parts of the economy... coming up into Christmas you'd expect that to increase and we really haven't seen any signs of that," Mr Grimshaw said.

But Australian Bankers Association boss Steve Munchenburg says the banks have several things to weigh up.

"On the one hand they know that if they don't pass on the rate cuts in full it's going to be very unpopular with customers," he said.

"On the other hand the cost of money has gone up."

HSBC chief economist Paul Bloxham says the banks do face rising costs.

"The banks might choose to not pass on the full amount as they seek to support their margins," he said.

Cautious market

In explaining the reasons for the official rate cut, RBA governor Glenn Stevens said turbulent financial markets, tough financing conditions and cautious behaviour by businesses and households meant global growth was likely to keep slowing.

On the domestic front, Mr Stevens said while investment in the resources sector was likely to keep rising, the high exchange rate and consumer caution had had a "noticeable dampening effect" on other sectors of the economy.

Inflation on a year-ended basis remained above the central bank's preferred range of 2 to 3 per cent, Mr Stevens said, but was likely to return to the target range in 2012 and 2013.

As a result, the RBA board concluded the inflation outlook "afforded scope for a modest reduction in the cash rate".

Westpac chief economist Bill Evans believes the RBA will continue to lower rates, tipping two further cuts in the first half of next year around February and May.

"We expect that they are concerned about the global outlook and particularly the developments in Europe and the impact that's now having on Asia," Mr Evans said yesterday.

"We also see interest rates as being slightly above neutral and I would expect we'd see further moves through the course of next year."

The RBA board next meets on February 7.