Hike in base rate: What should you do?

In an interview to CNBC-TV18, Gaurav Mashruwala, Certified Financial Planner spoke about banks’ base rate hike.

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Below is the verbatim transcript of Mashruwala's interview with CNBC-TV18.

Q: We have seen several big banks raise their base rates and consumers will now have to pay more for their home or auto loans. How should they approach this? Should they now reconsider looking at their investments and whether to liquidate some or should they just go for loans?

A: Yes, we have seen interest rates rising and base rates going up which in-turn would mean that the rate of interest that one pay on home loan, car loan and other loans would have gone up. There are two options. One option is that if a person has any assets in his portfolio, which are yielding returns lesser than the rate of interest that he is paying on home loans, for example if he is paying home loan interest rate of 10.5 percent and have a fixed deposit, which is giving him 8 percent or 8.5 percent, an old fixed deposit that makes sense to liquidate that fixed deposit and payoff home loan because his burden on revised interest rate would be less.

If that option is not available then he does not have choice but to stick it out because he does not have any asset, which he can hedge it against this hike. So, he live through that and over a period of time once Reserve Bank of India (RBI) eases liquidity in the system and interest rates fall, he will automatically get benefit of a lower interest rate.