The shilling has recovered nearly 16 percent from a record low of 107 hit in early October, helped by the central bank's tightening stance to curb rising inflation and a volatile currency.

The bank is set to hold its next Monetary Policy Committee (MPC) meeting on Thursday, which the market expects will leave its key rate unchanged at 16.5 percent.

At 0652 GMT, commercial banks quoted the shilling at 89.75/95 against the dollar, stronger than Monday's close of 90.40/60.

"Banks are cutting long dollar positions. It's quite expensive right now to hold on to dollars," said Wilson Mutai, a trader at African Banking Corporation.

"The shilling could touch 89.50 today, but further direction will be determined by the MPC decision."

Traders said the shilling could strengthen further in coming days supported by inflows from various sectors, while reduced importers' demand for dollars could buoy the currency.