2022 has been a turbulent year, characterised by high inflation driven by high energy and fuel prices. In response, hawkish central banks around the world were dominant forces in financial markets over the past year.

In its final rate decision for the year, the US Federal Reserve Bank (Fed), in line with market expectations, scaled back its aggressive pace of interest rate hikes and opted to hike rates by a smaller 50bps following four consecutive 75bps increases. The benchmark Fed funds rate rose by 50bps to a range of 4.25 to 4.50%.

Fed Chair Jerome Powell drove home his hawkish stance, reiterating that the Fed still has some way to go in raising interest rates and projects that the rate will end the year at 5.10% in 2023 and 4.10% in 2024, higher than previous forecasts. In response, the US dollar rose slightly, and US treasury yields increased across the curve toward the end of the year.

The South African Reserve Bank (SARB) followed in the footsteps of global central banks and delivered another 75bps rate hike at its last meeting for the year in November. The third consecutive 75bps rate hike and a cumulative 325bps over the year, took the repo rate to 7.00% and the prime lending rate to 10.50%.

The SARB still believes that the balance of risks to the inflation outlook remains to the upside. The headline consumer inflation forecasts were thus raised to 6.70% from
6.50% in 2022 and 5.40% from 5.30% in 2023, while material downward revisions were made to the growth forecast. GDP forecasts were lowered to 1.10% from 1.40% in 2023, with 2022 marginally lower at 1.80% from 1.90%