* Australian cbank cuts rates by 0.25%, second in two months
* Only ANZ passes on full cut to customers
* Banks say mitigating mortgage rate moves by adjusting deposit rates (Adds Westpac decision)
By Byron Kaye
SYDNEY, July 2 (Reuters) - Three of Australia's four biggest lenders on Tuesday resisted public pressure to pass on a central bank rate cut in full to customers, risking a rebuke from the government.
As expected, the Reserve Bank of Australia (RBA) lowered the policy rate by 25 basis points, the second easing in two months to support an economy forecast to grow at its slowest pace in a decade. Sydney-based Commonwealth Bank of Australia CBA.AX , the country's biggest lender, and No. 4 lender National Australia Bank Ltd NAB.AX said they would cut their standard variable owner-occupier interest rates, a key gauge, by just 0.19 percentage points.
The second-largest lender, Westpac Banking Corp WBC.AX , said it would cut its standard variable rate by 0.2 percentage points.
The so-called Big Four banks dominate Australia's mortgage market and their responses to central bank rate changes are closely watched by investors and politicians.
The modest cuts show the Australian banking industry is prepared to withstand some public backlash even after a stinging year-long inquiry led to dozens of recommendations of reforms meant to curb what the inquiry called rampant profiteering.
"Decisions like these are difficult and reflect the current unique circumstances, with home loan rates at record lows at the same time as deposit and savings rates also being at record lows," said NAB's chief customer officer of consumer banking, Mike Baird.
Baird added that the bank would limit the cut in its deposit rates to 19 basis points, the same as its mortgage rate cut.
CBA said it was withholding the full rate cut while increasing the interest rate it paid for term deposit customers by 0.2 percentage points.
The term deposit rate rise was "a deliberate choice to limit the interest rate reduction on the most popular savings account", it said.
Westpac's chief executive of consumer banking, David Lindberg, said it was "critical that we continue to carefully manage our business in a sustainable way for the longer term and take into account the diverse needs of all our stakeholders."
A month earlier, the country's third-largest lender Australia and New Zealand Banking Group Ltd ANZ.AX , passed on just 18 basis points of a 25-point central bank cut, prompting the treasurer to say the bank had "let down its customers". was the first bank to respond to Tuesday's rate cut - and the only one to say it was passing on the cut in full.
Bank margins in Australia, the world's No. 12 economy, have been under pressure due to low credit growth on top of about A$8 billion in regulatory and remediation costs stemming from the inquiry which ended in February.