At 0731 GMT, commercial banks quoted the shilling at 89.00/20 against the dollar, slightly weaker than Tuesday's close of 88.80/89.00.

"We expect renewed buying interest from importers under the 89.00 mark, a move that could slow the shilling's rally," said Bank of Africa in a daily report.

"The local unit continues to receive firm support from the farm, Tourism and NGO (aid agencies) sectors. Repatriations from the diaspora will also continue aiding the local unit."

In the money market, the weighted average interbank lending rate eased further to 11.8 percent on Tuesday from 12.1 percent the previous day, with traders pointing to improved liquidity helped by money freed as government bonds mature this month.

Traders said they expected the central bank to mop up more shillings through repurchase agreements, after it took out 2 billion shillings ($22.5 million) at a weighted average of 14.2 percent. The bank received bids worth 9.55 billion shillings.

"There is a bit of liquidity in the market after some bonds matured this month. I see the central bank coming in with repos because it still wants to tighten the market," said a trader at one commercial bank.

The shilling has gained 16.7 percent against the dollar since hitting a record low of 107 on Oct. 11, due to a tight monetary stance that has seen the central bank rate raised by 11 points since Oct. 5 to 18 percent.