The prime minister has urged the banks not to short-change Australians if the Reserve Bank of Australia (RBA) cuts interest rates as expected.

The RBA is expected to slash official interest rates following its Tuesday meeting, with the market having priced in a cut of at least 100 basis points.

The central bank has cut the official cash rate by 300 basis points since September, but the full benefits have not been passed on to borrowers.

Prime Minister Kevin Rudd said on Tuesday that there should be a “full pass through” of any further interest rate reductions “as rapidly as possible”.

The banks have benefited from various packages the government has announced, Mr Rudd said.

“Given what the government has done to support the continued strength of our banks, and that is important in our financial system, I would strongly urge the banks to take an open-hearted and compassionate approach to people and small businesses who find themselves in strife for which those people are not to blame.”

The wholesale funding guarantee had allowed the banks to continue to raise capital offshore, he said.

“Were it not for that intervention, the ability of the banks to raise the billions of dollars that they have in the last month and a half would have been fundamentally undermined.”

AAP