The European Central Bank hiked rates by 25 basis points on Thursday while the Bank of England left its rates unchanged. Economists see more rate hikes as a possibility.

At Thursday’s meeting the Governing Council of the ECB hiked its marginal lending, repo and deposit rates by 25 bps. CIBC World Markets Inc. says that this puts the cumulative rate rises at 175 bps, so far. “We are still of the view that there is still at least one more rate hike on the agenda before the end of the second quarter. The European Central Bank’s rate normalization process is not over yet, but we are getting closer to a peak in the current rate cycle.”

CIBCWM notes that the ECB acknowledged that the European economy enjoyed a stronger than expected end to 2006. It also revised both this year and next year’s growth forecast to the upside, with a median point at +2.5% for 2007 GDP (from +2.2%) and at +2.4% (from +2.3%) for 2008 GDP.

ECB president, Jean-Claude Trichet, confirmed that monetary conditions remain on ‘the accommodative side’, and rates are now described as ‘moderate’ whereas they were said to be ‘low’ before. “Those two nuances show that we are not far off what may be considered to be a ‘neutral rate’, allowing for one more rate hike ahead,” CIBCWM said.

Meanwhile, the Bank of England’s Monetary Policy Committee voted to maintain the official Bank Rate paid on commercial bank reserves at 5.25%. CIBCWM says that this non-move was expected.

“A no-change policy outcome was completely justified today but this does not mean that the MPC is done on the rate front just yet: let’s not forget that the Bank’s February forecasts showed inflation hitting target only assuming higher rates,” CIBCWM commented.