UPDATED: 5.43PM Labour is warning the country's trading banks that if they don't pass on cuts to the Official Cash Rate to their lenders, they'll consider legislation to force them to if elected to Government.

LISTEN ABOVE: Andrew Little talks to Larry Williams on the OCR

Andrew Little said the banks have so far refused to pass on last week's cut in the OCR to a new record low of 2.25 per cent.

Mr Little said there's little point in the Reserve Bank having the tool if the banks ignore it.

"If the Government's expectation is the banks will pass on drops on the OCR to lenders from banks, the Government should state that, and be very firm about it. It should remind banks that it does have powers that banks don't have," he said.

"We have a banking sector that, through good and bad, has been extraordinarily profitable, exporting billions of dollars in profits every year, and I think frankly they can do better for New Zealand."

The Prime Minister's scoffed at Labour's threat.

John Key said Labour's plan would mean the banks would also be forced to raise mortgage rates when the banks increase the OCR.

"When they put base rates up they don't always lift the lending rate that you as a consumer go and borrow money at.

"There are lots of factors that come into play so the guy's just pretty ignorant when it comes to banking matters".

Finance Minister Bill English said politicians shouldn't interfere.

"I mean, the Labour Party in the past has always been fairly mainstream on economics but now they're opposing trade, want the Government to set the interest rates. It's headed in a fairly different direction"

English isn't having a bar of legislation being needed to fix the problem. 

"We tried that back in the 70s and 80s. It ends up with politicians always deciding to try and keep rates in a different place than they should be. So I think it's a pretty dumb idea".

Winston Peters has got no sympathy for our trading banks.

The New Zealand First leader said the excuse used by the banks that they're facing higher international borrowing rates doesn't wash.

"The disparity between the actual borrowing rate and what they're charging the borrowers in this country is a disgrace. We're paying not the lowest interest rates in 50 years but in fact, in comparative terms, the highest".

Stricter controls on Kiwibank is one solution for problems with bank interest rates.

Green Party finance spokesperson Julie Anne Genter said it's not a matter of controlling the entire sector, but rather forcing competition.

"If we give Kiwibank the mandate to compete on interest rates that will improve the competitiveness of the whole banking sector".

The banks made a profit of more than $5 billion last year.