Prime minister Kevin Rudd has urged two major banks to reconsider their response to the latest interest rate cut by the Reserve Bank of Australia (RBA), which slashed official rate to3 per cent.

Belying analysts' expectations, RBA cut interest rates by a quarter of a percentage point to its lowest level since March 1960, resuming the most aggressive easing cycle on record.

However, the National Australia Bank (NAB) has refused to follow RBA's footsteps and said will not adjust its home loan rates.

Australia's biggest mortgage lender, the Commonwealth Bank of Australia (CBA) said it will pass on 10 basis points of the RBA cut to the customers as the cost of wholesale funding remains ''extremely high''.

Rudd expressed his disappointment, saying that the banks have generally acted responsibly since the RBA started cutting rates last year.

"The bulk of that has been passed through and in the case of the Commonwealth Bank I think of the 425 basis point cut they have probably passed on all but 20 or 30 basis points of that," he said.

"At the same time, however, this decision is disappointing and I would urge them to reconsider."

Rudd said the banks' behaviour contrasts with their weekend decision to give relief to home-buyers who lose their jobs.

"The banks have been cooperative on that and I have thanked them over the weekend for this," he said. "For the decisions announced by two of them today I don't thank them for that one bit," Rudd said in a television interview.

The ANZ bank today said that its standard variable home loan rate will fall to 5.81 per cent on April 17, while Westpac reduced its  mortgage rate by 0.1 percentage points, and also slashed 0.25 percentage points off the rates for business loans and credit card.

Since September, RBA has slashed its interest rates by a massive 4.25 per cent after peaking at 7.25 per cent - the result of 12 successive hikes in the face of rising inflation.

RBA governor Glenn Stevens said the Australian economy was contracting at a slower pace than its trading partners and successive rate cuts had reduced market and mortgage rates to ''very low levels by historical standards''.

''Nonetheless, the board judged that there was scope for a further modest adjustment to the cash rate,'' he said. ''The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead.''

He added that demand for labour was weakening, but growth in labour costs was also like to fall, helping to lower on inflation over the medium term.

Federal treasurer Wayne Swan has repeated his call for the banks to pass on the cut as quickly as possible. "Many Australians will see this as a slap in the face for people who are working hard to pay off a mortgage during this global recession," the treasurer said.

''All of these rate cuts will help cushion the Australian economy against the push of the global recession,'' Swan said.

Opposition finance spokeswoman Helen Coonan said the government needs to persuade the banks to pass on the rate cut in full.

"There is certainly nothing that has been said so far that would give anyone encouragement to think that the full rate is (going to be) passed on, really it is now going to be up to Mr Swan to use his persuasiveness to ensure that businesses do get the benefit of this rate cut," Coonan said.

Economists had been divided on yesterday's rate cut, with some predicting the board would decide to keep rates on hold.

There is scope for more drops (unlike in the US, Japan and Britain which are near zero), an analyst said; but the board will debate whether to go hard now, or keep another big hit in the tin. This is because once you reach a rate of 1.5 to 2.0 per cent there is limited scope to what banks (which must borrow on international markets) can pass on.

However, the more we reduce our official rates, the less attractive new government bond issues are at a time when we are trying to raise tens of billions to fund deficit spending programmes, an analyst opined.