The European Central Bank left its main marginal lending, refinancing and deposit rates unchanged today, as expected, but CIBC World Markets says that it hinted at a rate hike to come.

“The tone endorsed by the European Central Bank’s President Trichet at today’s press conference bodes well with our view that the ECB will hike rates by 25 basis points at the next Governing Council, on March 2nd,” it says in a report.

“An important change in wording when comparing today’s statement vs the January statement relates to how to manage risks to price stability,” it explains, “In January, Trichet referred to ‘close monitoring’ whereas today, the word ‘vigilance’ has resurfaced. It is all the more interesting to note that at the Q&A session, Trichet used vigilance again and while confirming that the ECB is not embarking on a ‘series of rate hikes’, he confirmed that the monetary authorities are ‘ready to act any time, if necessary’.”

“The overall growth/inflation assessment has not changed much since January, with the recovery story confirmed and downside risks prevailing (oil prices and external macro imbalances mainly) while upside risks to the inflation outlook were identified again and had ‘augmented’ (administered prices and indirect tax hikes in particular, as well as oil prices of course),” it says.

“The bond market is rallying in the wake of the ‘not series of rate hikes’ remarks, but that does not mean that we will not see the ECB hiking again: in fact, we can conclude that a March rate move is highly likely. Thereafter, the next move may not come as soon as April, but it is unlikely to ‘be it’ at 2.5%. So not all not that bullish for bonds,” CIBC adds.