Kenya's central bank raised on Monday its discount window rate to 11.34 percent from 6.25 percent previously, a posting on its website showed, after it revised its overnight lending rules last week.
Central Bank of Kenya said on Friday that commercial banks tapping the overnight window would be charged at a higher rate based on a formula that took into account the central bank rate (CBR), plus the previous day's average interbank rate, minus the central bank's rate of 6.25 percent plus a penalty of three percentage points.
The Central Bank of Kenya (CBK) has been using a range of short-term liquidity management tools since June to contain a sharp weakening of the shilling currency, that has lost more that 15 percent against the dollar this year.
Half way through Monday's session, the shilling was little changed against the dollar, trading at 92.50/70 to at 0836 GMT from Friday's close of 92.55/75.
Traders said they had factored in an expectation that the rates would rise based on the formula released on Friday, but said the shilling was expected to continue gaining ground.
"Banks cannot afford to hold dollars in this environment and... it should lend support to the shilling ... and rein in inflation because banks will think twice before lending to customers," said Ignatius Chicha, head of markets at Citibank.
"What we will see ... is people buying dollars as and when they need the it (dollars) ... not buying to speculate."