KAMPALA: The Ugandan shilling gained 0.6 percent against the dollar on Friday, helped by inflows from coffee exports but traders expect some weakening next week in light of falling government security yields.

At 1125 GMT commercial banks in Kampala quoted the currency of east Africa's third largest economy at 2,475/2,485, stronger than Thursday's close of 2,490/2,500.

"We've had inflows from coffee exporters while on the other hand (dollar) demand has been soft from both the interbank and corporates," said Ahmed Kalule, a trader at Bank of Africa.

"So the shilling has drawn strength from that imbalance but next week the market tone will be set when inflation data comes out."

Uganda's statistics office is due on Thursday to release May's consumer price index data.

Year-on-year inflation edged down to 20.3 percent last month from a revised 21.1 percent in March. Traders are watching for any further fall in the rate, which could put pressure on the central bank to start cutting its key lending rate.

Although inflation eased last month, the Bank of Uganda held its key policy rate at 21 percent this month from April, citing a worrying oil price outlook and soaring food costs.

An unexpected rate cut and a slump in yields in March sparked panic in the market and caused the shilling to plunge to its 2012 low of 2,620 against the dollar.

Faisal Bukenya, head of market making at Barclays Bank, said a slump in yields at this week's Treasury Bond auction was likely to cool investor appetite for Ugandan debt which could erode confidence the shilling.

"From the bond auction results, I see yields at next week's Treasury bill sale holding steady or edging lower,' he said.

"Clearly such a trend would create problems for the shilling."

Bank of Uganda is due to sell a total of 120 billion shillings ($48.07 million)worth of Treasury bills of all maturities on Wednesday.