(Bloomberg) -- Egypt retained one of the world’s highest inflation-adjusted interest rates, signaling confidence it’s well-placed to ride out the potential effects of Federal Reserve tapering and a spike in global inflation.

The central bank left the benchmark deposit rate unchanged at 8.25% and the lending rate at 9.25%, the Monetary Policy Committee said Thursday in a statement. All 11 economists surveyed by Bloomberg predicted the eighth consecutive hold after combined cuts of 400 basis points last year.

While some other emerging markets have implemented hikes, Egypt is more likely to hold steady and make a cut in the second quarter of 2022, according to Farouk Soussa, an economist at Goldman Sachs Group Inc. The North African nation has one of the largest differentials between policy and inflation rates of all economies tracked by Bloomberg, making it a favorite with foreign investors in local debt.

“Maintaining high real rates is likely to remain the preferred strategy to safeguard against an outflow of foreign (mainly short-term) portfolio investment,” Soussa said before the decision. He cited “ongoing underlying fragility in the external accounts, particularly the country’s dependence on debt-creating inflows to fund its trade deficit.” 

Overseas holdings in local Treasury bills and bonds have reached about $33 billion this year, a welcome inflow while tourism awaits complete recovery from the pandemic. 

Egypt’s recent inclusion on the Financial Times Russell Bond Index and joining of JPMorgan’s Emerging Markets Bonds Index early next year could reduce volatility in portfolio flows by shifting some investment to passive management. The government says it expects $1 billion in new investment in its local debt from the latter step.

The most populous Arab nation is also monitoring any potential increase in local consumer prices from the spike in global inflation. Headline inflation grew at its fastest pace last month since January 2020, to 6.6%, propelled by a spike in food costs. It remains within the central bank’s target of 5%-9%.

Raising rates would likely be a last resort next year and only occur if there’s significant outflows in foreign portfolio investments, said Radwa El-Swaify, head of research at Cairo-based Al Ahly Pharos.

©2021 Bloomberg L.P.