Pressure on banks to pass on rate cut

The federal government is urging the big four banks to think about their customers when deciding whether to pass on an official interest rate cut.

The Reserve Bank of Australia (RBA) on Tuesday dropped its cash rate by 25 basis points to 4.25 per cent, following a similar move in November.

But the big banks have yet to say whether they will pass the cut on in full to borrowers.

Two smaller banks - Bank of Queensland and ME Bank - lowered their interest rates in line with the RBA's cut.

Finance Minister Penny Wong urged the majors to do the same.

"We understand banks are operating in a global environment and it's a tough time out there," she told ABC Radio on Wednesday.

"But the banks also have to understand the tough environment that their customers, families and small business face."