The Australian banks' funding-costs have increased compared to the cash rate in the past year, as competition for deposits increased and wholesale funding costs rose.

Competitive pressures in the deposit market and risk premia for the banking sector globally have risen substantially. Which made a material impact on the cost to banks of funding their lending books, The Reserve Bank board takes these developments into account in its setting of the cash rate.

The Reserve Bank of Australia officials are insisting that monetary policy tools remain powerful even after Australia's four largest lenders boosted mortgage rates independent of the central bank in February. The banks cited higher funding costs that are narrowing their margins.

As, the policy makers have left the overnight cash rate target unchanged at 4.25% for the past two months as concerns about Europe's sovereign-debt crisis eased.