09:28 AM EDT, 06/17/2024 (MT Newswires) -- The Bank of Canada may hesitate to make aggressive rate cuts until policymakers feel assured the U.S. Federal Reserve is ready to start lowering borrowing costs, Vanguard Group economist Roger Aliaga-Diaz said, Bloomberg News is reporting on this Monday.

The report noted Fed policymakers last week shifted their forecasts for the path of interest rates, signaling just one cut in 2024. But it also cited Aliaga-Diaz as saying that while the Bank of Canada has already started an easing cycle -- this month it became the first Group of Seven central bank to cut rates -- it may be reluctant to get too far ahead of the Fed.

Aliaga-Diaz thinks that "cuts every other meeting are more reasonable" to expect in Canada, he said in an interview with BNN Bloomberg. He added Governor Tiff Macklem and his governing council "may need to get assurances that the Fed will engage in a cut, even if it will come later."

Canada's role as a major commodity exporter leaves it vulnerable to currency volatility, which may factor into the central bank's thinking, even though it doesn't explicitly manage policy for the exchange rate, Aliaga-Diaz is cited as saying. Bloomberg noted the Canadian dollar has sagged 3.7% this year versus the greenback, due to a combination of slower growth and decelerating inflation. It also noted a cut every other meeting would take the Bank of Canada's policy interest rate down to 4.25% by the end of the year, from the current 4.75%.

Meanwhile, Citigroup's Veronica Clark is predicting bolder action: she sees Macklem cutting at each of the four scheduled decisions in the second half of 2024, taking the policy rate down to 3.75%, as the labour market weakens.

Inflation should continue its march toward the central bank's 2% target, Aliaga-Diaz reportedly said, which means fixed-income investors enjoy a real yield. The report noted the 10-year Canada benchmark bond closed last week at a yield of 3.282%.

"It's a good time to be in bonds. We say bonds are back," said Aliaga-Diaz, who's Vanguard's chief economist of the Americas and global head of portfolio construction.

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