UPDATE 2-Kenya's economic growth to rebound in 2018, finance minister says

(Updates with comments on interest cap, Eurobond)

NAIROBI, Nov 7 (Reuters) - Kenya's economy should rebound in 2018 after drought and political turmoil during a prolonged election cycle cut nearly one percent from this year's early economic growth forecast, Finance Minister Henry Rotich said on Tuesday.

The economy is expected to grow by more than 6 percent next year, Rotich said. He said growth would move towards 7 percent in the medium term, without elaborating.

He had earlier trimmed the 2017 forecast to 5.0 percent from a previous projection of 5.5 percent, which itself was a reduction from 5.9 percent.

The economy grew 5 percent in the first half of the year, the government said, falling short of its full-year forecast.

"Agriculture this year will be better than last year, that is the reason why our growth looks optimistic, even at this time when we face these challenges on the investment side," Rotich told a news conference.

Rotich said that revenue collections for the first four months of the 2017/18 (July-June) fiscal year had fallen short by 40 billion shillings ($386.47 million).

Kenya's economy has faced a slowdown for the better part of the year. In addition to the drought and its political uncertainty, credit growth has slowed, partly because of a cap on commercial bank lending rates imposed last September.

Rotich said the government had no immediate plans to lift the cap, saying they were still studying its effects.

The government planned to forge ahead with its infrastructure plans, he said, including a port at Lamu to ease regional trade.

The government was also looking at issuing another Eurobond, Rotich said, although he would not be drawn on the amount or time period. Kenya issued a $2 billion Eurobond in 2014.

Kenya held presidential elections on Aug. 8, but the Supreme Court nullified President Uhuru Kenyatta's win and ordered a repeat election. Opposition leader Raila Odinga boycotted the new election, on Oct. 26, and Kenyatta won again, with 98 percent of the vote, in a campaign marred by violent protests.

On Monday, a former lawmaker filed a petition at the Supreme Court challenging Kenyatta's second victory, in a last-minute move that opened the door to legal scrutiny of the vote.

Kenya is a regional hub for trade, diplomacy and security. The prolonged election season disrupted its economy as investors waited to see the outcome before expanding, Rotich said.

($1 = 103.5000 Kenyan shillings)

(Reporting by Katharine Houreld; Editing by George Obulutsa and Raissa Kasolowsky)