The shillings was quoted at 100.35 per dollar, up from Monday's close of 100.60. Traders attributed the strengthening to banks cutting their dollar holdings.

"People are unwinding long dollar positions to fund their CRR (cash ratio reserve) positions on the money market side and also we are approaching due date for tax obligations which banks will be remitting to CBK," said a trader from a commercial bank.

The shilling has been firmer this year, mainly due to the reduction of political risk after last year's presidential election, which has boosted foreign investment inflows.

The hard currency reserves held by the central bank have also rose to record highs.