BORROWERS should not hold their breath waiting for banks to reduce the half a percentage point in unofficial interest rate rises they have inflicted since the beginning of this year, the Reserve Bank governor, Glenn Stevens, has warned.

As the Reserve continues to eye another cut to the official interest rate, possibly as soon as next month, Mr Stevens told a parliamentary committee that bank funding costs had fallen but were not as low as before the credit crunch.

"Frankly, I think it is unlikely that banks will volunteer reductions in loan rates independent of the Reserve Bank lowering the cash rate," he said. The increase in funding costs "hasn't gone away, but it's just not getting worse", he said.

Speaking publicly for the first time since the Reserve Bank board last week decided to cut interest rates for the first time in nearly seven years, Mr Stevens said the board's strategy was to "seek a gradual fall but over a longer period" in inflation.

Acknowledging that interest rates were still "well on the restrictive side", Mr Stevens said any calls for relief for struggling households had to be weighed against the inflationary effect of the boom in business and government investment.

Economists continue to expect another rate cut by Christmas, with some tipping it will come as soon as next month if surveys of jobs, retail sales and borrowing reveal continued weakness.

Mr Stevens said the board would consider whether to cut interest rates on a "month to month" basis. "I think the question will be: do we hold here, or do we go down a bit more?"

Defending the bank's rate rises in February and March, Mr Stevens said they were necessary to fight inflation.

Comparing setting interest rates to driving a car, Mr Stevens argued that it was these upward adjustments to interest rates that meant rates could now fall.