The Kenyan shilling weakened against the dollar on Tuesday amid increased dollar demand from the manufacturing sector and was seen slipping further. Stocks were down.
At the 1330 GMT close of trade, commercial banks posted the shilling at 103.20/30 per dollar, compared with Monday's closing rate of 103.05/15.
"What we've seen is unlocked importer demand," said a trader at a major commercial bank in Nairobi, adding that the Kenyan currency could weaken to 104.70/80 by the end of the week.
"As the liquidity tightening continues to ease, we could see the shilling on the back foot again," the trader said.
Earlier in the day, the shilling had received a boost from a positive assessment by the International Monetary Fund of the country's handling of recent volatility.
The Fund's resident representative in Kenya, Armando Morales, told Reuters the worst of this year's foreign exchange volatility was over, adding that the central bank's tightening stance was prudent.
The central bank's 300 basis points of increases to the benchmark lending rate since June to 11.50 percent, and its efforts to mop up excess liquidity from the market have helped the shilling to its highest since mid-August in recent days.
Bond yields have also risen, with the weighted average interest rate on the benchmark 91-day Treasury bill climbing to 20.637 percent at last week's auction from 18.607 percent at the previous sale.
The Nairobi Securities Exchange's main NSE-20 Share Index was down 20.20 points to close at 4064.16.
On the secondary market, government bonds valued at 809million shillings ($7.85 million) were traded, up from 49 million on Monday.