Can you foresee that your mortgage interest rate rises to 17% in a day? That may be unimaginable to many Singaporeans.

However, the Russian Central Bank has just shown case and raised its benchmark interest rate from 10.5%  17% to try and stop the collapse of the Ruble (Russia’s currency).

While Singaporeans are busy cashing in Malaysia Ringgit at this festive season because it has reached a record low to SGD, many did not realize that what is happening in Russia is far more relevant to our daily life. I will explain to you why.

Ruble Crisis is a global crisis

On 17 August 1998, due to decline of oil price and devalue of Ruble, the Russian government defaulted on domestic debt. In layman’s term, the money you lent to your government is no longer safe.

But the two impacts in the world are clearly shown in the chart below:

  1. The whole emerging market bond collapsed
  2. The volatility in stock markets, measured by the S&P 500 volatility index, shot to the roof.

In another word, whether you have invested in stocks or bonds, you would have suffered.

Data source: Bloomberg, JP Morgan

I have cautioned you in early November that the commodity price is in a free fall. In fact, since June, the oil price has fallen from USD115 to about USD60 and the RUB has gone from roughly 33 to around 64 currently. The Ruble has in effect, lost almost exactly the same amount as oil has, roughly 48%. You can see from the chart, even the Russia-Ukraine “war” incident occurred early in the year in March did not move Ruble much.

USD to Ruble, price going up meaning Ruble is falling in value against USD

How this impacts our lives

When will my petrol price come down?

thumbs downIf the oil price drops nearly 50%, our petrol price should be much cheaper. The reality in Singapore? I hardly see any saving on my petrol bills.

Thumbs down to the petrol companies and the regulators.

Can you still afford that house?

For people who are still enjoying a low mortgage interest rate, it is time to wake up. The interest rate does increase, sharply, even in Singapore!

If 3-month SIBOR rises to be more than 7%, can you still afford the mortgage payment of your house? I guarantee that most people have never calculated that. If you have a $1 million mortgage, can you afford $80,000 interest a year?


Should I buy or sell?

Whether you have invested in stocks, bonds or commodities, you should have suffered somehow in the past few months.

Few people expected the oil price to fall this low and now the market is getting very nervous about it. So, everyone is selling risk. However, the world isn’t going to end. Low oil price will eventually be positive for economic growth. I have highlighted in my previous article that countries which have become dependent on oil revenue will see their receipts fall sharply.

But how about other assets? if we revisit the 1998 chart as shown above and history repeats itself, would it be a golden opportunity to re-balance your investment portfolio?

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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