Executive Summary The purpose of this report was to examine interest rate disparity between Reserve Bank of Australia (RBA) and major Australian banks. The report presents RBA monetary policy decisions since December, 2012 and how major banks have responded to them. Focus was placed on the RBA’s April, 2012 interest rate decision. The report also presents recent monetary policies from China, India and Europe for comparison purposes. Research for the report involved current literature review of articles covering recent monetary policies and major banks responses. Main findings indicate that there exist interest rate disparities between central banks’ monetary policy and commercial banks. In all the cases reviewed interest cuts had no effect on banks’ lending rates. While it is clear that major banks interest rates will never match RBA’s interest cuts, this report recommends that RBA continues with interest cuts, but find other means to pressure major banks into matching their interest rates with RBA interest cuts to gain public confidence. Introduction The RBA lowered cash rates by 25 basis points in December, 2012 to 4.25 and has kept it on hold for now four months in a row. In its April, 2012 decision, the RBA left the cash rate unchanged to the surprise of many. Despite the interest cuts, major Australian banks are hesitant on matching their interest rates with RBA interest cuts. The purpose of this report was to examine the interest rate disparity between RBA and major Australian Banks. The information gathered was to guide an understanding into monetary policies and the disparities that exist between cash rate cuts and banks’ lending interest rates. It was assumed that cash rate cuts by central/reserve banks should instantly ease the financial markets. This should compel major banks into lowering their interest rates. The current financial situation in Australia and world over was considered with a view to understanding the effect of cash rate cuts on banks’ lending interest rates. Information was gathered by way of online review of current literature. Although immense literature existed on the internet on this topic, most of the articles could not meet the required academic threshold for inclusion in this report. The report is presented in three major parts. The first part is introductory part, which presents the executive summary and introduction to the report. The second part covers a review of literature, which also presents the major findings and discussions. The final part presents summary/conclusion and recommendations of the report. Literature Review Banks are sometimes forced to borrow money from other banks on a short-term basis to cover liquidity shortfalls resulting from customer withdrawals. Interbank interest rates thus denote interest banks charge on such short-term loans. Most often, interest rates follow the law of demand and supply and to some extent inflation and activities in the financial market. However, the government, through central bank, has a say on the prevailing interbank interest rates especially as a means to containing inflation or easing credit crunch. Since December 2011, the RBA has kept interbank interest ra