NAB's executive in charge of personal banking, Gavin Slater, pointed to the bank's move to raise $5.5 billion capital from shareholders earlier this year, which was partly in response to the tougher rules "There are a range of factors that come into consideration in interest rate decisions. The home loan market is dynamic, with multiple changes being seen across the industry," Mr Slater said. "Regulatory changes on capital requirements also increase the costs associated with providing home loans," he said. "Today's decision has not been easy, but we believe this is right decision for the long term. We know we have to balance the interests of our customers with the needs of our more than 550,000 shareholders."

For a customer with a $300,000 mortgage, NAB's move will increase the monthly repayments by $30.48, figures from Canstar show. The repayments on a $500,000 loan will increase by $50.80 a month. Treasurer Scott Morrison said banks' interest rate moves were "commercial decisions," but also highlighted the "handsome" returns banks make. "Banks will make their own commercial decisions about how they charge customers in relation to shifts in their cost base," he said.

"They do receive a handsome return on their equity, our banks, that's a good thing, haven't got an issue with that."

"We want our banks to be strong but equally businesses across the country have changes to their cost base all the time."

The Australian dollar dipped by about one fifth of a US cent immediately after NAB's move to below US72¢, but was only marginally lower at US72.09¢ by mid-morning. Traders are betting there is a growing chance the Reserve Bank of Australia may cut official interest rates to make up for the commercial banks' rate increases, though financial markets think the central bank is most likely to leave the cash rate unchanged when it next meets on November 3.

NAB is not increasing deposit interest rates or changing fixed mortgage rates. ANZ Bank is now the only major bank not to raise its home loan interest rates since Westpac kicked off this round of big bank rate increases last week, and analysts expect it will follow suit. A bank spokesman said ANZ did not comment on the future direction of interest rates. Chief executive Mike Smith this week left the door open to a rate increase, saying the bank would weigh its options, adding that extra capital was a cost that had to be borne by someone. Loading with Latika Bourke

More to come