Bank of Canada Governor Tiff Macklem indicated he won’t be in any rush to hike interest rates even if the economy makes up pandemic losses.

In a speech titled “The benefits of an inclusive economy,” Macklem reiterated the central bank will continue to support the economy until a “complete” recovery takes place but added specifics on what that looks like. He cited employment surpassing pre-pandemic levels by about 200,000 and businesses reinvesting again, as well as a healthy jobs market for groups that have been hit hardest by the pandemic such as young women.

“We’re about about 700,000 jobs below where we really should be,” Macklem said in response to questions after his speech. “Right now we’re about 500,000 jobs below where we were pre-pandemic.”

The Bank of Canada last month accelerated the timetable for a possible interest-rate increase and pared back its bond purchases -- the first major economy to signal its intent to reduce emergency levels of monetary stimulus. Since that April 21 policy decisions, investors have raised their bets on a rate hike as early as next year, driving the Canadian dollar higher by 3.1 per cent. The currency is now up 4.5 per cent so far this year, the best performing major currency.

At a press conference after the speech, Macklem said the bank is closely monitoring the loonie’s gains, to ensure further appreciation doesn’t create economic headwinds. The currency weakened after those comments, falling to $1.2176 per U.S. dollar, or US$0.8213 per Canadian dollar at 2:12 p.m. in Toronto trading.

Swaps trading suggests about a 50 per cent chance of a rate hike in Canada this time next year. Almost three hikes are fully priced in over the next two years, and five hikes over the next three years.

Concrete frame

Despite the more upbeat tone in forecasts last month, Macklem has always sought to emphasize the central bank’s commitment is not to raise interest rates before the economy fully recovers, and that any future hike would reflect economic conditions at the time. That was the focus Thursday, where he provided a more concrete frame around the sort of indicators he’s looking at.

“We will use our monetary policy tools to support a complete recovery and achieve our inflation goal,” Macklem said in remarks prepared for a virtual speech before the Universities of Atlantic Canada. “A complete recovery is a shared recovery,” he said. “It means that we’ve not only recovered the jobs lost due to the pandemic, but we have also created jobs for graduating students and others who have entered the job market since the start of the pandemic.”

He reiterated the Bank of Canada’s forward guidance the central bank will keep its policy rate at 0.25 per cent “until the spare capacity in the economy is used up, so that we sustainably achieve our 2 per cent inflation target.” It’s not clear, however, whether he see the elimination of spare capacity being the same thing as a “complete” recovery.

A complete recovery also means businesses “have confidence that the pandemic and its effects are well behind us, demand for goods or services has come back, and they are looking to add capacity and invest in new opportunities,” Macklem said. Businesses and households, meanwhile, will be able to count on inflation being sustainably at target.

In the speech, Macklem also discussed the importance of having a diverse and inclusive workforce overall. The more people working, the stronger the economy will be.

“A more inclusive economy is a bigger economy, a more prosperous economy with more room to grow without creating inflationary pressures,” he said.