ANZ Bank has lifted interest rates for its variable home loan customers and small business borrowers despite the central bank leaving the cash rate on hold.
ANZ late on Friday announced it was increasing variable rate mortgages and small business loans by 0.06 per cent.
The move comes despite the Reserve Bank of Australia (RBA) opting on Tuesday to leave the cash rate on hold at 4.25 per cent.
ANZ said in a statement released late on Friday that it needed to lift it lending rates because of rising wholesale funding and deposit costs.
"The funding environment changed quite dramatically in late 2011 as a result of the economic and financial crisis in Europe," the head of ANZ's Australian operations Philip Chronican said.
"This has seen wholesale funding costs rise and competition increase dramatically among banks for deposits.
"We accept our response to the new funding environment is difficult for some of our customers - even though deposit customers have benefited from better rates.
"Given this and the volatility we have seen in wholesale funding markets, we wanted to ensure these costs were sustained before we acted to pass them on.
"We also wanted to pace increases in a way that was manageable for our customers and ensured we were competitively positioned."
The RBA cut the cash rate in November and December last year, but retail banks independently increased their lending rates in February due to their increased funding costs.
ANZ decided to leave its variable rates unchanged in March but raised a raft of fixed-interest mortgage product.
The bank's chief executive Mike Smith warned in February further interest rate rises were on the cards, despite ANZ reaping a $1.48 billion first quarter profit.
He said the bank's margins would continue to be squeezed as wholesale funding costs remain higher and competition for deposits continues.