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Pakistan’s central bank aims to resume cutting interest rates when inflation eases, Governor Salim Raza said.

Inflation will slow as the effects of higher energy costs wear off, Raza said in an interview in Singapore today, without saying when. Consumer prices may rise between 11 percent and 11.5 percent in the six months through June, a percentage point more than the previous half-year, he said.

Pakistan’s goal stands in contrast to other countries across Asia, where policy makers are preparing to boost borrowing costs as inflation accelerates amid a global recovery. Lower interest rates may benefit companies including MCB Bank Ltd. and support an economy hurt by the government’s war against Taliban guerillas in the country’s northwest.

“Interest rates, barring liquidity constraints, should follow the trend of inflation” in coming down, Raza said after meeting with investors. “If we are comfortable inflation has stabilized at single-digit levels, then certainly we do want to ease the pressure on our businesses and industries and we’d like to bring interest rates down.”

The State Bank of Pakistan kept its benchmark interest rate unchanged at 12.5 percent on Jan. 30 after reducing it by 2.5 percentage points last year, as inflation accelerated and the government raised power tariffs and gas prices to contain its budget deficit.

Liquidity in Pakistan’s banking system, strained by government borrowing to finance its widening deficit, may improve as foreign aid and other funds flow in, Raza said.

Bond Sale

Pakistan may sell as much as $1 billion of bonds in the coming months, Finance Minister Shaukat Tarin said in an interview in Singapore yesterday.

“Pakistan as an emerging market, with its attractive yield differentials, would be a well-priced bond,” Raza said today. “We think the present yield discounts a lot of the improvement; it’s still backward looking. If you move forward, the prospects would justify better pricing than that.”

Credit-default swaps protecting the debt of Pakistan rose 27.5 basis points to 950 basis points as of 9:48 a.m. in Singapore, according to prices from Royal Bank of Scotland Group Plc. The cost of protecting the country’s debt has fallen from 3,084.3 basis points on Jan. 1, 2009, to 870.5 yesterday, according to prices from CMA DataVision in New York.

The International Monetary Fund on Aug. 8 agreed to increase a loan to Pakistan by $3.2 billion, after the nation was forced to turn to the Washington-based lender for a $7.6 billion bailout in November 2008. Pakistan is expecting $2.2 billion of aid and loans from the U.S. and Japan before June 30, Tarin said last week.

Friends of Pakistan

The Friends of Democratic Pakistan, an aid group that includes the U.S., U.K., Japan and Saudi Arabia, may provide $1.4 billion to $1.8 billion to the South Asian nation in the current fiscal year ending June 30, Tarin said yesterday.

Pakistan’s growth in the 12 months ended June 30, 2009, cooled to 2 percent, the slowest pace in eight years. The government expects the $168 billion economy to expand 3.4 percent this fiscal year, Tarin said.

The economy may expand at a faster pace in the coming years as lower interest rates spur demand, Raza said. Manufacturing is improving and there is “huge agricultural potential,” he said, adding that a growth rate of 5 percent to 6 percent “in the short term is very viable.”

The central bank will let the market decide the level of the rupee and will intervene only to smoothen volatility, Raza said, adding that he sees no reason for the currency to weaken from current levels.

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