April 30, 2020 / 9:10 AM / a month ago

UPDATE 2-Kenya's economy to rebound in 2021 - central bank governor

* Says diversified economy, bank policy has kept shilling stable

* Says government working on mechanism to cushion small businesses (Adds details on shilling exchange rate, credit for small businesses, quotes)

By George Obulutsa

NAIROBI, April 30 (Reuters) - Kenya’s economy is expected to rebound next year, while its current account deficit will narrow slightly, the central bank governor said on Thursday, a day after the regulator cut its benchmark lending rate for the second time in a month.

Governor Patrick Njoroge said the economy was forecast to grow 6.4% in 2021 compared with an expected expansion of 2.3% this year.

“We expect 2020 to be a rebound. Currently roughly the estimate is around 6.4%. But I think the point is we will revise that, given the uncertainties that we have,” he told an online news conference.

The coronavirus has badly hurt key sectors such as tourism, horticulture and manufacturing, all struggling due to the economic slowdown induced by the pandemic.

The central bank’s 2021 projection was more optimistic than the World Bank’s, which said on Wednesday Kenya’s economic growth could rebound to 5.2% in 2021 if its virus containment measures ease by the second half of this year.

A Reuters poll of economists forecasts growth of 5.0% next year.

The central bank cut its benchmark lending rate again on Wednesday, to 7.0% from 7.25%.

Njoroge reiterated that the central bank had no target for the shilling exchange rate and only intervened in the market to smooth out volatility.

He said the shilling was benefiting from the fact that Kenya has a highly diversified economy and trading partners.

“When others are hit significantly because they are oil producers, or primary commodity producers, when you look at other countries, their currencies have weakened dramatically,” he said.

Kenya’s current account deficit is seen at 5.6% of GDP in 2021 compared with 5.8% in 2020, he said, adding this will get a boost from inflows like an International Monetary Fund disbursement of $750 million in emergency assistance next week.

He said the government expects another $1 billion from the World Bank the next two or so weeks.

“These are in a sense exceptional, but they will help us in the balance of payments,” he said.

As of Thursday, Kenya had 374 confirmed cases of COVID-19, with 15 deaths. To stem the spread, the East African country has suspended commercial flights in and out of the country, imposed a dusk-to-dawn curfew and banned public gatherings.

It has also halted movement in and out of regions most affected by the virus in the country, including the capital Nairobi.

The central bank said on Wednesday there was a need for a mechanism to cushion small and medium businesses, like through a credit guarantee scheme.

Njoroge said the bank, commercial banks and the government had not set an amount yet that would go into scheme and that they and institutions like the World Bank were working to see how to best set up the mechanism.

“We are thinking of a fund maybe in the order of 100 billion shillings,” he said. (Reporting by George Obulutsa Editing by Omar Mohammed Editing by Alison Williams, William Maclean and Frances Kerry)

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