The Kenyan shilling lost further ground against the dollar on Wednesday, under pressure from fuel importers and manufacturers, but liquidity had increased as activity in the long-dormant interbank market rose, traders said.

At 0924 GMT, commercial banks quoted the shilling at 132.00/20, compared to Tuesday's close of 131.80/132.00.

Refinitiv data shows the shilling has lost 6.6% of its value against the dollar this year.

Last week, President William Ruto said the government was working with the central bank to revive the interbank foreign exchange market, which had been inactive in recent years, because of what traders said was aggressive policing by the central bank.

"People are still buying from each other on the interbank market – so there's been some good price discovery and the big (foreign exchange) spreads we had previously have narrowed down," said one trader at a commercial bank.

"The shilling is still sliding because the fundamentals are pushing it, but it's more market-determined."

The lack of a vibrant interbank foreign exchange market has partly been blamed for an acute shortage of hard currency that has even forced the government to seek longer credit periods for essential imports like petrol.

The central bank has repeatedly denied undue interference in the foreign exchange market, saying the regulator was merely playing its role of enforcing discipline.

The bank says it also has no preferred rate for the shilling and only intervenes to smooth out any volatility. (Reporting by Hereward Holland; Editing by George Obulutsa)