Many banks including State Bank of India (SBI), Bank of Baroda, Bank of India and Oriental Bank of Commerce have cut their MCLR rates after the Reserve Bank announced its monetary policy last week. The reduction will make home, auto and other loans cheaper for borrowers. SBI also announced a sharp cut in fixed deposit rates for its customers. After the latest cut, SBI’s one-year marginal cost of funds-based rate (MCLR) has come down to 7.85% per annum from 7.90%.

SBI also signaled that there could be more cuts in the future. "The impact of recent RBI policy measures and reduction in deposit rates will be reflected in the next review of MCLR," the bank said.

Even though the RBI kept its repo rate unchanged in its latest policy review, the central bank announced many steps that could help in bring down the interest rate in the financial system.

The RBI said that it will lend 1 lakh crore in one- and three-year money to banks at the policy rate, a move that will help banks to borrow fund at a cheaper rates against government securities.

In addition, the RBI introduced several measures, allowing banks to do away with the need to set aside extra cash reserves against incremental retail lending against home and auto and to micro, small and medium enterprises (MSMEs).

“The introduction of long-term repo operations (LTRO) for 1yr and 3yr, for total amount of 1,00,000 crore at policy repo rate, will bring down cost of funds for banks without effectively cutting deposit rates," Soumya Kanti Ghosh, SBI Group Chief Economic Adviser, said in a note.

These measures mean essentially mean a lower cost for banks and will help improve liquidity, said Narendra Solanki, head of fundamental research (Investment Services) at Anand Rathi Shares & Stock Brokers.

The RBI had cut its policy rate by 135 basis points over five straight meetings last year, before surprising markets in December by standing pat due to the concerns over inflation.

Analysts are hopeful that RBI could cut again cut rates this year if inflation comes back into its comfort zone.

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