Nov. 22 (Bloomberg) -- The Canadian dollar fell after a government report suggested inflation was contained in October, which may reduce expectations of how much more the Bank of Canada will raise interest rates.

The consumer price index excluding goods such as gasoline rose 1.7 percent in October from the same period a year ago, below the median forecast of 1.8 percent in a Bloomberg survey. The so-called core rate was 1.7 percent in September. The Bank of Canada has raised its benchmark interest rate twice since September to combat inflation.

``A downside number on the core could certainly sway the market to assume rate hikes may not be as aggressive,'' Carl Gomez, economist at Toronto-Dominion Bank in Toronto, said before the report.

Canada's dollar declined to 84.39 U.S. cents in Toronto as of 7:07 a.m. in Toronto, from 84.57 U.S. cents late yesterday. One U.S. dollar buys C$1.1850.

The overall year-over-year inflation rate, which includes energy costs, fell to 2.6 percent from the 31-month high of 3.4 percent in September, Statistics Canada said in Ottawa.

Yields on interest-rate futures indicate the central bank will raise its benchmark rate a quarter percentage point on Dec. 6 and Jan. 24, with a 90 percent chance of an additional rate increase on March 6, according to analysts.

Higher interest rates have the potential to make a country's financial assets more attractive to foreign investors, boosting demand for the currency.

Canada's central bank last raised its target interest rate in October, indicating more would be required to contain inflation.

``Some further reduction in monetary stimulus will be necessary to keep demand and supply in balance over the next four to six quarters,'' Bank of Canada Senior Deputy Governor Paul Jenkins, said in a speech in Calgary last week.

To contact the reporter on this story: Dawn Desjardins in Toronto at ddesjardins1@bloomberg.net

Last Updated: November 22, 2005 07:08 EST