The Governing Council of the European Central Bank hiked rates 25 basis points, as expected at today’s meeting in Madrid. More hikes may be coming.

The ECB announced that minimum bid rate on the main refinancing operations of the Eurosystem will be increased by 25 basis points to 2.75%, starting June 15. Also, the interest rate on the marginal lending facility will be increased by 25 bps to 3.75%, and the interest rate on the deposit facility will be increased by 25 bps to 1.75%.

CIBC World Markets says that ECB chief Jean-Claude Trichet, “justified today’s interest rate hike by stating that the decision reflects the upside risks to price stability over the medium term … and contributes to anchoring inflation expectations. Additionally, the statement says that after today’s decision, ‘interest rates are still low by historical standards and monetary policy remains accommodative’.”

“As we suspected, ECB president Trichet did not use the word ‘vigilance’ in the statement when mentioning the upside risks to price stability, but instead used the phrase coined back in March (after they last hiked interest rates), saying that the Governing Council will ‘continue to monitor closely all developments to ensure price stability over the medium and longer term’,” CIBC said.

It noted that the short-term risks to the GDP outlook are said to be broadly balanced, while over the medium-term they are to the downside, related to oil, global imbalances and protectionism. As for inflation, risks to the outlook are to the upside.

“The lack of the word ‘vigilance’ may have disappointed some, but it does not mean that future rate hikes are on not on the agenda,” CIBC concluded. “Quite the contrary — in the Q&A session Trichet said that ‘a progressive withdrawal of monetary policy accommodation would be warranted’ should the ECB’s outlook be confirmed, that leaves the door open for further hikes down the road.”

CIBC reported that the ECB did consider a 50 bps move. “All in all nothing to alter our expectations for further interest rate hikes from the ECB, but Trichet did not want to let the market get ahead of itself,” it said.

Meanwhile, the Bank of England’s Monetary Policy Committee today voted to maintain the official Bank rate paid on commercial bank reserves at 4.5%. The previous change in interest rates was a reduction of 25 bps on August 4, 2005.