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TWO of the big four banks have passed on in full the Reserve Bank's 0.25 percentage point interest rate cut and the others are set to follow within days.

The cut in the Reserve's cash rate from 4.75 to 4.50 per cent will take Westpac's standard variable mortgage rate to 7.61 per cent and the Commonwealth Bank's to 7.56 per cent, slicing $49 from the monthly payment on a $300,000 loan.

If the National Australia Bank also cuts by 0.25 points its standard variable rate will fall to 7.42 per cent, the lowest of the big four and the first below 7.5 per cent in a year.

The Reserve last adjusted rates on Melbourne Cup Day last year, inching them up by 0.25 points because of concern about inflation. But each of the big banks passed on more, the Commonwealth Bank pushing up its mortgage rate by almost twice the Reserve's move, sparking outrage among customers and talk by the Treasurer of tough moves to rein in the banks.

Those moves mean that even though the Reserve's cash rate is back where it was, the big banks' official rates remain much higher, although discounting means new customers can expect a better deal if they shop around.

The Commonwealth Bank cut comes into effect on Friday and Westpac's a week later.

A $300,000 mortgage holder will be $5000 a year better off than when mortgage rates peaked at 9.6 per cent before the financial crisis, and $5400 worse off than when they hit 5.1 per cent in the depths of the crisis.

Neither of the two banks has announced a cut to its less politically sensitive business and credit card rates, each saying they are "under review".

The Reserve statement characterises the cut as a one-off, omitting the usual reference to rates remaining under review, saying rates are now "consistent with achieving sustainable growth and 2 to 3 per cent inflation''.

The bank cut because underlying inflation has moved back to the middle of its target band.

Previously alarmed by the inflation outlook, it is now forecasting inflation consistent with its target for the next two years.

The bank believes commodity prices have peaked, taking some pressure off the economy. Its monthly commodity price index released after the meeting was down 3.9 per cent.

The futures market is pricing in an 80 per cent probability of another cut next month.

The dollar slid 0.75¢ to US104.47¢ on expectations of more cuts.

"Effectively the bank has admitted it got it wrong," said a Commonwealth Securities economist, Craig James. "In August it was set to hike rates but it has become abundantly clear inflation is under control and financial conditions have been tighter than necessary. The bank has now moved back to a more neutral stance. That suggests rates could move either way in coming months. If rates are moving anywhere in the short term, clearly it's down, rather than up."

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