NAIROBI (Reuters) -- Kenya's economy is forecast to grow by 6.3 percent in 2007 compared to a projected 6.0 percent expansion in 2006, according to a central bank monetary policy statement published.

The bank also estimates inflation will fall to 3.5 percent in 2007 from 4.3 percent in 2006 and 8.0 percent in 2005.

"The growth momentum is expected to be sustained through 2006 supported by increased credit to the ate sector for investment in productive sectors," the statement said, adding that liberalization of the telecommunications and energy sectors would boost the economy.

The concessioning of the Kenya Railways is also expected to give the economy a shot in the arm.

Jointly with neighboring Uganda, Kenya is handing over its railway to South Africa's Sheltam Trade Close Corporation, to run the loss-making bodies for 25 years.

The twice-yearly central bank policy statement, published by the government in the Kenya gazette, said the economy faced risks.

"The upward trend in the economy may however be undermined by the deteriorating terms of trade from the high and volatile oil prices and high prices of other critical imported inputs," it said. "Other risks include delays in implementation of reforms, that create uncertainties and loss of confidence of investors in the business environment."

President Mwai Kibaki's government -- voted into power in 2002 on a platform of economic reforms -- has been dogged by corruption scandals and demands for a new constitution.

The bank said exchange and interest rates are expected to remain stable and estimated reserves of foreign exchange would rise to $2.6 billion by June 2007, up from $2.3 billion in June 2006.