KARACHI, Nov 27: The chief of Pakistan's top state-run bank said on Saturday he did not expect a dramatic rise in interest rates, which have been rising in recent months as the central bank tries to check inflation.

The State Bank of Pakistan has been gradually increasing yields on its benchmark six-month Treasury bills to counter rising inflation, which is running at an annual pace of 8.7 per cent.

"We don't see any dramatic increase in the interest rates," said S. Ali Raza, President and Chairman of National Bank of Pakistan, which also performs treasury operations.

After a slight increase in rates, there will be period of stabilization, he told Reuters in an interview.

Mr Raza said he did not think the central bank was slow in increasing rates. The economy absorbed unexpected external shocks, including a record surge in world oil prices, he said. "Only six or seven months ago, the lowest interest rates were witnessed in the country. Right now there is a kind of reversal of the curve. The curve has started to steepen, he added.

Mr Raza said the rise in inflation appeared temporary. Oil prices will eventually come down and Pakistan expects a better wheat crop next season after being forced to import the commodity this year, he said. He said economic reforms had given good dividends. The NBP chief said second generation reforms would have to build on steps already undertaken. "There is a need to focus more on areas like infrastructure, which has serious bottle necks," he said.

Pakistan needs to make sure that its ports, roads and power generation facilities do not become a constraint for investment, he said. He expressed the hope that commercial banks, which in the past have stayed out of infrastructure projects, would become more involved in financing them.

MONEY LAUNDERING: Pakistani banks have taken a series of strong anti-money laundering steps to ensure that official channels are not misused to finance terror activity, the NBP chief said. "Knowing your client is our top priority."