POLITICAL pressure will keep banks from ratcheting up interest rates on housing loans above the Reserve Bank's 25 basis point rise, but business customers may not be so lucky, with lenders looking to recoup funding costs across parts of their loans books.

Banks were last night preparing to raise interest rates across their lending books, with the majors expected to announce their plans by the end of the week.

Given support for the sector from Canberra over the past year in the form of wholesale and deposit guarantees as well as a temporary ban on the short selling of bank stocks, banks were likely to avoid sparking a political backlash, one bank executive said yesterday.

The Treasurer, Wayne Swan, said yesterday that he did not want banks to raise their variable mortgage rates by more than 25 basis points, noting that some had not fully passed on previous reductions by the central bank. Analysts said there was little scope for banks to argue they were being stung by higher wholesale funding costs, with pricing pulling back after markets virtually shut down last year.

Banks normally generate half their funding from deposits, with the balance split evenly between mostly offshore short-term and long-term funding.

Six months ago short-term funding costs were tracking between 80 and 100 basis points above averages in recent years, but they have now pulled back to 20 basis points above where they were previously.

Long-term funding costs are now priced about 80 basis points over the average of the past few years, compared with as much as 150 basis points over the past six months.

''My feeling is that as interest rates rise, banks will more likely than not move in step with those [official] rate rises,'' said the JP Morgan banking analyst Scott Manning.

However, Mr Manning said there was a risk non-mortgage loans such as business and personal loans and credit cards could gradually move above central bank increases.

A spokesman for the Commonwealth Bank said yesterday said interest rates were under review. Other banks, including Westpac and NAB, also confirmed that they were reviewing rates.

Last week, Commonwealth Bank's chief executive, Ralph Norris, said he would be ''surprised'' if banks raised home loan rates faster than the Reserve Bank. However, he said, it was clear rates were on the way up.

''The governor of the Reserve Bank has made it very clear the emergency setting of 3 per cent for the official cash rate is unlikely to stay and there will be an upward move in rates over time,'' Mr Norris said.

Lowest among the big four is ANZ's 5.45 per cent for a one-year loan.