A test is now under way of the extent to which banks will cut their lending rates in the wake of a cut in the official cash rate.Yesterday morning the Reserve Bank of New Zealand cut the cash rate to 8.0 per cent from 8.25 per cent. One reason cited by the RBNZ was the rising cost of funds for banks, especially in raising wholesale debt in offshore markets (which they do both directly and through their Australian-headquartered owners)."Today's cut will help to mitigate the effect of these increases on the actual borrowing costs paid by firms and households," the RBNZ wrote in its announcement of the new cash rate target.That's the theory. The practice may prove different.No lender dashed to announce a cut in any interest rates tied to short-term rates, in business or consumer lending categories. One bank, ASB, did tinker with some rates on fixed-term loans.If anything, the reduction in the cash rate may help repair bank lending margins and prevent further rises in lending rates. These continue to percolate through the sector, with Bank of New Zealand, for example, yesterday advertising in newspapers increases of 25 basis points in personal, business and agribusiness overdraft rates (according to Interest.co.nz).Almost all borrowers with home loans in New Zealand have fixed-rate loans, something that became the standard lending practice over recent years. The New Zealand Herald today reported that this group was now 88 per cent of all home loan customers. Many of them will shift to a more highly priced variable rate when their current fixed-rate term expires.In Australia, banks may be as hesitant to reduce customer lending rates should the cash rate fall late in 2008, as the financial markets are starting to conclude.Asked following a talk at a business lunch in Sydney yesterday, Ralph Norris, chief executive of Commonwealth Bank, said the issue was "hypothetical" but the bank would review its position at the relevant time, The Australian reported."(When cash rates ease), we will know what our funding costs are on a wholesale basis and then we will review our rates," he said.