David Rosenberg Warns That Tighter Immigration Targets Could Send Bank of Canada Rate Below 2%

The article discusses the potential impact of tighter immigration targets on the Canadian economy, specifically on interest rates and growth. The authors argue that a reduction in population growth due to these targets could lead to a recession, and that this could push the Bank of Canada’s policy rate below 2%. Here are some key points from the article:

1. Reduced population growth: The authors estimate that a three percentage point drop in population growth (due to tighter immigration targets) would strip more than one percentage point off aggregate demand.
2. Recession risk: This reduction in demand could trigger an outright recession, all else being equal.
3. Impact on interest rates: The authors believe that the reduced immigration targets will make it harder for the Bank of Canada to reach its neutral interest rate (currently estimated at 2.75%).
4. Policy rate forecast: As a result, the authors maintain their call that the policy rate will dive to 2% or even lower before the easing cycle ends.
5. Canadian dollar outlook: With a bleak Canadian dollar outlook (potentially dropping to 66 cents U.S.), the article recommends value across Government of Canada bonds.

The article’s main argument is that tighter immigration targets could have significant and far-reaching consequences for the Canadian economy, including:

1. Reduced population growth
2. Increased recession risk
3. Lower interest rates
4. A bleak Canadian dollar outlook

Overall, the article suggests that the Bank of Canada’s policy rate may need to be more accommodative than previously thought, with a potential rate below 2% being a possibility.