The Labour Party and the bank workers' union are condemning government MPs for blocking a parliamentary inquiry into interest rates.

The finance and expenditure committee had been considering holding an inquiry but decided yesterday, on a majority vote, not to go ahead with it.

Labour finance spokesman David Cunliffe said New Zealanders were looking to Parliament to answer questions about why interest rates charged by the banks, especially floating rates, seemed to lag behind cuts to the official cash rate.

National, ACT and the Maori Party MPs on the committee voted against holding the inquiry after giving "every indication" they would support it, he said.

Bank workers' union Finsec said it showed the Government was either impotent or on the side of Australian-owned banks.

"The decision of the government majority on the select committee is disgraceful and is a significant let down for all bank customers," said Finsec campaigns director Andrew Campbell.

"The Government is once again walking away from doing anything to help Kiwi workers pay the bills."

Labour and the Greens wanted the inquiry to go ahead.

"Thousands of New Zealand homeowners, businesses, farmers and exporters have every reason to ask why Parliament's watchdog on the economy is, by a majority vote, choosing to stay muzzled," Mr Cunliffe said.

"They are paying too much for their mortgages and business loans and they've now been denied the opportunity to find out why in a parliamentary forum."

Labour MP Brendon Burns, a committee member, said he attended a public meeting in Christchurch last month when Prime Minister John Key said the banks could cut their interest rates if they "tried a bit harder".

"So there was implicit support at the highest level for some scrutiny of the banks," Mr Burns said.

In Parliament, Mr Cunliffe questioned Finance Minister Bill English about the committee's decision.

Mr English said it was up to the committee -- of which he was not a member -- to decide whether to hold an inquiry.

"If anyone thought an inquiry by backbenchers would change the direction of the economy, then we would have done it months ago," he said.

Committee chairman Craig Foss, a National MP, announced the decision not to hold the inquiry.

He said the vote was taken after a briefing from the Reserve Bank.

The committee has 12 members -- five National, four Labour, and one each from ACT, the Maori Party and the Greens.