Both the Bank of England and the European Central Bank left interest rates unchanged today, as expected. However, the BofE could soon be pushing rates lower, while rate hikes may be coming for Europe, CIBC World Markets says.

After a meeting in Athens, the Governing Council of the ECB said it decided to leave its repo rate unchanged at 2.00%. The Bank of England’s Monetary Policy Committee voted to maintain its repo rate at 4.5%.

The Bank of England’s move follows a 25 basis point rate cut in August. Since there was no rate change, there was also no accompanying policy statement, notes CIBC World Markets. “In the context of the downward revisions brought to Q2 GDP (growth now reported at a 12-yr low) along with the perceived slowdown in both the consumer sector (which was once the main engine to growth) as well as the industrial sector, we believe it is only a matter of time before rate cut talks are brought back to the table at the Bank of England,” it says.

“Whilst hawks may wish to focus on soaring energy prices and their upward bias on inflation, the Bank has an inflation target over a two-year horizon and if the GDP growth profile is revised lower, it will impact CPI too,” CIBC adds.

CIBC reports that ECB president Trichet, “used today’s press conference to call for ‘strong vigilance’ with regard to the upside risks to price stability over the medium term, whilst acknowledging that despite renewed upward pressures on prices stemming mainly from oil market developments, the monetary policy stance still remains appropriate.”

“He reiterated it is crucial that inflation expectations remain well anchored and that strong vigilance is also required with respect to excess liquidity,” it adds.

“Whilst Trichet explicitly stated that he ‘was not pre-announcing a rate hike’ it was in the Q&A session that he gave a little more away (he usually avoids such questions), but he did say that the Governing Council did discuss the pros and cons of raising rates at today’s meeting and that if growth improves they will have to take that into account,” CIBC reports. “Trichet warned that the ECB can move rates at any time, but nevertheless the current monetary policy stance still remains appropriate.”

“All in all, Trichet did move towards a more hawkish policy language today, albeit disguising it until the Q&A session, hence that could be why we did not see an immediate bond market reaction … in theory today’s press conference is a bond market negative and supportive for the euro,” it concludes.