The shilling has gained 1.2 percent this week, due to the central bank's intervention in the money markets to defend the local currency.

Traders are betting on the shilling breaking 85 per dollar due to central bank's intervention in the market, in line with its tight monetary policy to keep inflation in check as well as the local currency.

At 0730 GMT, commercial banks quoted the shilling at 86.00/20 to the dollar, stronger than Wednesday's close of 86.20/40.

"There is a feeling that we will see some tea inflows," a trader who did not wish to be named said.

"There is also low dollar demand. The tight monetary stance has created reduced money supply and lowered aggregate demand."

The central bank has mopped up a total of 24.5 billion shillings ($281.6 million) through repurchase agreements this month and sold an unspecified amount of dollars to ease pressure on the shilling.

The bank said in its most recent weekly bulletin that it has sold $73 million sales to mop excess liquidity in the week ending Jan.13.

Charts showed that a break past 85 would usher in a target of 82.80 per dollar, traders said.

"Going forward, we see the local unit trading in a wider range of between 85.50/86.50 with a bias of weakening as we near the end of the month," a report by Bank of Africa said.

"However, the liquidity tightening stance taken by the authorities is expected to continue aiding the local unit in the days to come. Also the possibility of intervention by the CBK will give firm support to the shilling."