Treasurer Wayne Swan says the commercial banks should pass on all of the latest official interest rate cut to their customers.
The Reserve Bank of Australia (RBA) lowered the cash rate by half of a percentage point to 3.75 per cent on Tuesday.
Many economists predict the commercial banks will lower their lending rates by around 35 of the 50 basis point cut.
"This has been an interest rate cut that businesses and households have been hanging out for," Mr Swan told Sky News on Wednesday.
"The banks should do the right thing and pass this on in."
Commercial banks have cited funding costs, particularly in overseas markets, for rate moves not in sync with the RBA.
ANZ raised its lending rates by six basis points in April despite the RBA leaving the cash rate unchanged.
The RBA noted the impact of funding costs to the banks when making its decision on Tuesday.
"A reduction of 50 basis points in the cash rate was, in this instance, therefore judged to be necessary in order to deliver the appropriate level of borrowing rates," RBA governor Glenn Stevens said in a statement on Tuesday.
Mr Swan said the RBA's statement was not an "endorsement" of any action the banks might do in withholding any of the rate cut.
He said borrowers had more options if the banks did not pass on the rate cut in full.
"If they don't, their customers will be very angry and they do have the capacity to, due to the changes we have put into place in banking competition policy in recent times to more easily walk down the road and get a better deal," Mr Swan said.
Mr Swan said he would still pressure the banks to fully pass on the rate cut, unlike the opposition.
"I'm certainly not going to be out there like Mr (Joe) Hockey and Mr (Andrew) Robb who have basically endorsed a failure of the banks to pass it through in full," he said.
The Bank of Queensland is the only bank to announce its move to lower lending rates by 35 basis points.
The big four commercial banks - Westpac, Commonwealth Bank, National Australia Bank and ANZ - are yet to reveal their moves on lending rates.
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