Treasurer Wayne Swan has extended a warning to the banks ordering them not to use the government's withdrawal of its bank deposit guarantee as an excuse to slug consumers with higher interest rates.

The withdrawal is the latest step to lift crisis measures initiated during the global turmoil and which helped Australia avoid recession.

The federal government revealed today it would withdraw its guarantee for banks deposits of more than a $1 million from the end of March.

In addition, Swan claimed the national government would also eradicate guarantees on state government borrowings by the end of 2010, giving states extra time to secure liquidity for new un-guaranteed bond lines.

The guarantees had extended funding certainty to more than 150 banks and financial institutions, including 110 credit unions and 11 building societies. Non-major Banks utilized the guarantee to raise more than A$32 billion ($27.6 billion) on global markets.

Mr. Swan posted that bank borrowing costs had returned to its original position as it was on the onset of the global financial crisis in 2008, meaning that they would no longer be justified in lifting interest rates beyond moves by the Reserve Bank of Australia.

The government will continue to guarantee deposits of less than $1 million until the cap is reviewed in October 2011.