UPDATE 1-IMF says it stopped Kenya's access to $1.5 bln standby credit

(Adds talks on new facility, comment on interest rate cap)

NAIROBI, Feb 20 (Reuters) - The International Monetary Fund stopped Kenya's access to a $1.5 billion standby credit facility last June after failing to agree with the government on a reduction of the fiscal deficit, the fund said on Tuesday.

The two-year precautionary facility, set to expire next month, was put in place for Kenya in case of unforeseen external shocks. The East African economy has not yet tapped the facility, which was preceded by a smaller one-year credit line in 2015.

"The programme has not been discontinued but access was lost in mid-June because a review had not been completed," Jan Mikkelsen, IMF representative in Kenya, told Reuters.

"There was no agreement on the fiscal adjustment at the time and then I do believe the lengthy election period (later in the year) made it difficult to have a review and complete that in the period that followed."

Mikkelsen said a team from the fund's Washington headquarters was in the country for talks on a Kenyan request for a new standby credit facility.

"We have just started discussions," he said. "I'm hopeful we will get an agreement."

He addded that a reduction of the fiscal deficit and the elimination of a cap on commercial lending rates were key to a deal. (Reporting by Duncan Miriri; Editing by Andrew Roche)