The Reserve Bank of Australia will not make a formal decision until tomorrow, but financial markets are in no doubt that there will finally be some relief for mortgage holders after seven years of rises.

"Tuesday's cut of .25pc will make lending cheaper than a week ago, but not cheaper than a year ago," ANZ chief economist Saul Eslake told The Age.

"It won't spark a trend in the housing market."

He said the environment had changed for big lenders, which had raised rates independently of the Reserve because of the credit crunch.

"But the cost of their funds has now eased, and also there has been an increase in political and public pressure on them to cut their rates."

In the wake of the decision by Wizard Home Loans to cut rates by .25 of a per cent, making it the first leader to cut its variable interest rate in seven years, Mr Eslake is forecasting two years of cuts.

"I think that on top of tomorrow's cut there will be a further cut in October-November, three next year and two more in 2010, provided inflation is on the decline," he said.

Tomorrow's expected .25 cut in the official cash rate to 7pc will produce a variable interest rate of 9.3pc.

It will reduce monthly repayments on a $200,000 mortgage by almost $40.

Federal Treasurer Wayne Swan, who described the Wizard cut as a "wonderful weekend surprise", said the major banks would have no excuse but to follow the Reserve Bank's lead.

Mr Swan said banks had passed on previous RBA rate rises "in a nano-second" and should pass on any cuts just as quickly.

CommSec's chief economist Craig James said rates on fixed term mortgages have been cut in the past month by the major banks, but the move by Wizard is the first cut to standard variable rates by a lender.

"It does throw down the gauntlet to the other institutions," he said.

Shadow treasurer Malcolm Turnbull said that while any rate cut would be welcome, the increases earlier this year may not have occurred had it not been for Wayne Swan's relentless campaign to talk up inflation.