(Adds comments from governor, details)
By George Obulutsa
NAIROBI, May 24 (Reuters) - Kenya’s central bank governor said on Tuesday the economy was expected to expand by 6 percent in 2016 after 5.6 percent growth last year, while the current account deficit was expected to narrow to 5.5 percent of GDP from 6.8 pct in 2015.
Patrick Njoroge was speaking a day after the central bank cut interest rates by 100 basis points to 10.50 percent, saying falling inflation offered room for an easing of monetary policy. Economists said the move would support growth.
The Monetary Policy Committee (MPC) had held rates at 11.50 percent since last August.
Analysts said easing would support growth.
“The MPC thought that the dangers of overheating the economy are much more muted and as a matter of fact there was a negative output gap, meaning that GDP is below potential GDP, so there is room to increase GDP production,” Njoroge told a news briefing.
The agricultural sector was proving stronger than expected and tourist arrivals, another vital source of revenues that have been hammered by security concerns in the past three years, was picking up, he said.
“(The) growth outlook for Kenya’s main trading partners in the region remains strong, suggesting better prospects for export performance,” he said in his presentation.
He referred to better prospects for the Kenya’s neighbours in the six-nation East African Community and more broadly in the 19-member COMESA bloc of African states, the market for about 40 percent of Kenyan exports.
Inflation was “expected to decline and hence to remain within the government target range in the short-term,” he said, referring to the preferred band of 2.5 percent to 7.5 percent. Inflation slipped to 5.27 percent in the year to April.
Kenya, which has discovered oil reserves but for now remains a crude importer, has benefited from weaker global oil prices.
Njoroge said the current account deficit, as a percentage of GDP, was expected to drop to 5.5 percent in 2016 before ticking up again to 5.8 percent in 2017. (Writing by Edmund Blair; Editing by Louise Ireland)