The European Central Bank left rates unchanged today, but economists see a shift to an easing bias — and hefty rate cuts to come.

The ECB’s Governing Council decided at Thursday’s meeting that the minimum bid rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.25%, 5.25% and 3.25%, respectively.

TD Economics reports that, while inflation remains higher than desired at 3.6%, “for the first time in the current cycle, the Governing Council noted diminishing upside risks to inflation and even acknowledged that the possibility of cutting interest rates at the current meeting was discussed.

“The pace of lending to the corporate sector has suggested an easing bias would already be the norm were it not for the GC’s tough talk on inflation and second round effects throughout this year given the commodities-driven spike in inflation rates,” TD adds. “With this rhetoric changing, we now expect to see the ECB cut interest rates by a quarter-point in December and February, with an additional 50 basis points in easing over the course of the second and third quarters of 2009.”

“Our expectation at TD Economics is that another quarter or two of economic contraction is likely over the next six to nine months and as this forecast unfolds, the ECB will be inclined to cut further. This will be exacerbated by weaker export growth to the U.S. and Britain as those economies sour,” it concludes.

Global Insight observes that, “the ECB is clearly becoming much more worried about the Eurozone growth outlook amid the heightened financial sector turmoil. However, still-elevated Eurozone inflation and concerns over wage growth are preventing the ECB from cutting interest rates just yet.”

The ECB now has an easing policy bias, Global Insight says, and it has opened the door to an interest rate cut. It expects the ECB to cut its key interest rate from 4.25% to 4.00% in November, and now forecasts interest rates to fall to 3.00% in 2009.

In addition, TD said it also expects the Bank of England to resume their easing cycle with a quarter point cut when they meet next week. But it has changed its forecast for future cuts, and now expects 150 bps of easing between next week and June of next year. “Moreover, there are significant risks for a 50 bps cut by the BoE next week and the onus may be on financial markets to dissuade the BoE from such a strong move,” it says.