High yields on Treasury bills and bonds have fuelled investor appetite, especially for the short-dated paper.

On Thursday, the central bank will sell 91-day Treasury bills worth 4 billion shillings, with a one-year bond as well as a 12-year infrastructure bond set for auction next week.

At 0800 GMT, commercial banks quoted the shilling at 82.95/83.15 to the dollar, weaker than Wednesday's close of 82.80/83.00.

"We have seen a bit of (dollar) demand from oil players," Ignatius Chicha, head of markets at Citibank said.

"We have some supply from non-governmental organisations, but(dollar) demand is higher."

Chicha said offshore investors were expected to participate in the upcoming auctions which would strengthen the local currency.

The 182-day Treasury bill attracted a 227 percent subscription rate, with a weighted average of 19.539 percent from 20.024 percent last week, with investors keen to reap capital gains in tandem with easing inflation.

"For now I am still bullish on the shilling," Duncan Kinuthia, head of trading at Commercial Bank of Africa said.