NAIROBI, Feb 7 (Reuters) – Kenya’s shilling exchange rate has overshot its equilibrium rate and there is scope for the central bank to support it, the central bank governor said on Wednesday.

The bank raised the benchmark lending rate KECBIR=ECI by 50 basis points to 13.0% on Tuesday, citing sticky inflation and lingering pressure on the local currency.

The shilling weakened more than 20% against the dollar last year and has fallen to more record lows this year. In the past, the central bank has said it has no preferred rate for the shilling and only intervenes to reduce volatility.

“It is my view now that the exchange rate has overshot the equilibrium rate. So there could be scope for central bank to support the exchange rate going forward,” Thugge said.

He added that the bank raising its key rate could also contribute to the shilling strengthening.

Thugge said the economy will likely expand at a slightly faster pace this year, helped by improved performance in agriculture and the services sector.

He added that the economy was forecast to grow 5.7% this year versus 5.6% last year. In December, the central bank had forecast the economy to grow 5.9% in 2024.

(Reporting by George Obulutsa; Editing by Jacqueline Wong, Christopher Cushing and Andrew Heavens)