TORONTO - Bank of Canada governor Stephen Poloz says with the economy running at close to full tilt, a mechanical approach to setting interest rates would suggest higher borrowing rates should already be in place.

But in a speech today, he says the central bank is scrutinizing some unusual factors at play -- including encouraging signs that companies are starting to expand their capacity by investing in equipment and by hiring more people.

In prepared remarks of his address released in Ottawa, he says wages have been growing and the workforce has seen a sudden jump in participation by young people.

Poloz acknowledges the bank's current benchmark rate of one per cent remains quite stimulative -- however he believes there's still more room for the labour market to grow before it starts pushing inflation higher.

The central bank introduced two rate hikes this year due to the strong economy -- once in July and again in September. But since then, Poloz has kept the rate on hold, including at last week's announcement when he pointed to uncertainty over trade and a greater-than-expected weakness in exports.

Still, he continues to warn that higher interest rates will likely be required over time, even though the bank will proceed with caution by focusing on incoming data.