Difficult funding conditions for banks in Europe and elsewhere featured in the rationale published yesterday by the Reserve Bank of Australia to explain the cut in the cash rate by 25 basis points, to 4.25 per cent. Four months after credit markets took a turn for the worse, the RBA noted that "the sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity [in the region].The RBA acknowledged that "financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe."They may remain difficult. On Monday night, Standard & Poor's placed the sovereign ratings of 15 eurozone members on credit watch with negative implications. Critically, the AAA ratings assigned to France, Germany, Austria, Finland, Luxembourg and The Netherlands are included in the rating action.S&P is concerned about tightening credit conditions across the eurozone, the high risk premiums being applied to the bonds of eurozone sovereigns, and critically, the continuing disagreements among policy-makers about how to tackle to crisis (this was the primary reason given by S&P for its downgrade of the US). S&P said it is also concerned about high levels of government and household indebtedness, and the increasing risk of economic recession.However, S&P stated that it expects to resolve the credit watches as soon as possible, after the latest summit of European Union leaders on Friday.On the domestic front, the RBA wrote that "short-term market interest rates have tended to decline a little further in recent weeks", while "term funding conditions for financial institutions have become more difficult". Following the cut in the cash rate by 25 basis points in early November, the RBA said that lending rates were "now around their average level of the past 15 years".A month ago, the RBA described borrowing rates as being "still a little higher than average".Will the RBA be able to note any meaningful change in borrowing rates by the time its board re-convenes in early February 2012?Big banks are taking their time making any announcement on changes to home-loan rates and other product rates, and there remains plenty of conjecture that they will resist a full flow through of the 25 bps cut to their politically sensitive home-loan rates.On the other hand, banks can alter home-loan spreads over their cost of funds in other ways.Westpac, through its St George brand, recently wound back its discounts of up to 100 basis points on new home loans of above average value. And home loan broking groups are anticipating that discounts will be reduced by other lenders.Borrowing rates will no doubt remain sticky in other product categories.Credit card issuers all but ignored last month's cash rate cut. Comparison website Infochoice reported that only three issuers cut credit card rates in November. They were Hume Building Society, the Police & Nurses Credit Union and Qantas Staff Credit union.