The Canadian dollar weakened against the greenback following the speech.
In prepared remarks of his speech, he says finding ways to encourage more people into the workforce would also enable Canada to permanently raise its growth capacity without generating higher inflation. CIBC expects just one more hike this year from the central bank.
As this process involves upside and downside risks to inflation, the central bank will remain particularly data-dependent, Poloz said.
In a lecture at Queen's University, Governor Poloz said that the Canadian economy is now in the phase of the economic cycle where companies need to expand capacity to meet rising demand. The Bank of Canada's primary objective is to target inflation, and Poloz's strategy is based on the premise that the erosion of productive capacity in recent years can be in part repaired, which would help keep prices in check. "Obviously, this is a phase worth nurturing".
Questions around the true level of the economy's potential growth rate is one of a number of uncertainties the central bank is taking into account as it rejects a "mechanical" approach to policy and remains cautious on interest rates, he said.
"We cannot know in advance how far the capacity-building process can go, but we have an obligation to allow it to occur", Poloz said.
For example, adding half-a-million workers to the labour pool would boost Canada's potential output by 1.5 per cent, or $30-billion a year, according to estimates by the central bank.
Mr. Poloz cited the example of Quebec, which has dramatically raised the participation rate of prime-age women to 87 per cent from 74 per cent over the past two decades by subsidizing child care and extending paid parental leave.
The biggest gain would come by raising the participation rate of prime-age women (those 25 to 54 years old) - now at 83 per cent versus the 91 per cent for men.
"If we could simply bring the participation rate of prime-age women in the rest of Canada up to the level in Quebec, we could add nearly 300,000 people to our country's workforce", said Poloz, who noted the central bank has no role in implementing specific policies created to break down labour-force barriers.
He noted that the federal government's budget last month made commitments aimed at increasing the labour-force participation of women.
The increased investment, meanwhile, will help bring more people into the work force - such as women, youth and the long-term unemployed.
Youth represent another source of untapped potential.