OTTAWA -- Speculation that the Bank of Canada is preparing to raise its key interest rate continued to ramp up after governor Stephen Poloz's latest comments to a German newspaper published Tuesday.

While talk about a possible rate hike by the Bank of Canada has increased, inflation in Canada has remained low.

However, Poloz said in the interview with Handelsblatt last week that there is a substantial lag between when the economy approaches full capacity and when that begins to translate into inflation.

He said if the central bank only watched and reacted to inflation, it would never reach its inflation target and it would always be two years behind in the reaction.

Poloz noted that he has to look at other indicators in the models that predict inflation.

The Bank of Canada's key interest rate target has been set at 0.5 per cent since 2015. The central bank's next rate announcement is set for July 12.