Retirees must be given "a fair go" by the banks for staying loyal during the pandemic, the prime minister says.
Announcing a freeze to the deeming rate for almost 900,000 social security recipients, Scott Morrison said self-funded retirees had been "doing it tough" in the past two years.
"My message to the banks is to give (deposit holders) a fair go," he told reporters in Adelaide on Wednesday.
"I'd be encouraging the banks - it's obviously their call and there is no way to force them to do that - in fairness to those deposit-holders who have stood by their savings.
"They deserve the recognition of that, ensuring that those (interest) benefits are passed on directly to them."
The Morrison government is on the defensive after the central bank raised interest rates for the first time in more than a decade.
The deeming rate freeze will apply to 885,000 people, with the lower deeming rate set to remain at 0.25 per cent, while the upper deeming rate will stay at 2.25 per cent.
Social Services Minister Anne Ruston said the freeze would provide greater financial certainty for older Australians.
"We know that older Australians particularly have felt the uncertainty of the last two years very, very keenly and the decision today to freeze deeming rates for the next few years provides them with two years of certainty," she said.
Labor said the prime minister should be judged for not taking any responsibility when it comes to interest rate hikes, cost of living pressure and stagnant wages.
Shadow treasurer Jim Chalmers said while there were international factors which influenced the economy, there were also domestic pressures the government could control.
"Our issue with the prime minister isn't that he doesn't take responsibility for all of this, it's that he takes responsibility for none of this," he told ABC radio.
"That's the difference between him and Anthony Albanese."
Dr Chalmers said the interest rate rise was the first of many challenges to come as the Reserve Bank also forecasts increases to inflation.
"There are things that governments can do to try and manage the economy in the context of high inflation and the context of rising interest rates, and that's what our economic plan is all about," he said.
Senator Ruston defended the rate rise as inevitable following the pandemic.
"This is our economy coming out of a shutdown, it's our economy reopening," she told ABC radio on Wednesday.
The Reserve Bank of Australia raised the official cash interest rate from a historic low of 0.1 per cent to 0.35 per cent - the first rise since 2010 - ahead of the May 21 federal election.
Treasurer Josh Frydenberg said the timing of the rise weeks out from an election "is what it is".
"They are an independent Reserve Bank, and it's not for me to criticise the board for the decisions that they take and they've explained the decision just yesterday," he told the Nine Network on Wednesday.
"It does, hopefully, reinforce in people's minds why strong economic management is so important.
"The timing is what it is and that's as a result of higher inflation that we've seen both globally, but also here in Australia domestically."
Mr Morrison campaigned in the marginal South Australian seat of Boothby in Adelaide while Mr Albanese was set to spruik Labor's TAFE policy in Melbourne.
Economic management will be firmly in the spotlight during a treasury portfolio debate on Wednesday.
Mr Frydenberg will square off against Dr Chalmers at the National Press Club.
