Australia on Monday announced the country's consumer watchdog would investigate mortgage pricing after the country's largest banks refused to pass on recent interest rate cuts in full.

The central bank's official cash rate has been lowered three times this year amid fears about the flagging domestic economy and now stands at a record low of 0.75 percent.

Despite the urging of Australia's government and central bank, the four largest financial institutions have not lowered home mortgage interest rates offered to customers proportionately.

Australia's conservative government has touted itself as a reliable custodian of the economy, but is under pressure amid slowing growth and high living costs.

Treasurer Josh Frydenberg on Monday directed the Australian Competition and Consumer Commission (ACCC) to investigate pricing decisions across the profitable banking sector.

He said that the so-called "Big Four" banks have on average passed on just 57 of the 75 basis points in cuts.

"The banks have left themselves open to the charge that they are putting their profits before their customers," Frydenberg wrote in the Daily Telegraph.

Australia's banks have not passed on recent interest rate cuts to consumers in full
Australia's banks have not passed on recent interest rate cuts to consumers in full AFP / WILLIAM WEST

The government is eager to lower the cost of borrowing as part of its attempts to protect the economy against the spectre of recession.

Australia recently recorded its weakest annual growth in a decade.

The banks -- ANZ, Commonwealth Bank, National Australia Bank and Westpac -- hold about 80 percent of home mortgage market share.

They are currently in the process of refunding customers billions of dollars after a separate Royal Commission probe found customers had been charged unfair fees and given questionable financial advice.

ANZ Chief Executive Officer Shayne Elliott said the latest inquiry provided "a good opportunity to provide facts in what is a complex space".

"We know we have not done a good job in explaining our position and we will be working hard to ensure this process delivers results."

The ACCC will deliver its preliminary findings in March before handing down its final report by September 2020, which could put pressure on the banks to act.

Australia's top competition regulator and consumer protection agency can force companies to hand over internal documents.