The Governing Council of the European Central Bank voted to hike interest rates by 25 basis points today, as economists expected.

As a result of the 25 bps hike, the minimum bid rate on the main refinancing operations of the Eurosystem will be increased by to 4%; the interest rate on the marginal lending facility will be increased to 5%; and, the rate on the deposit facility will be increased to 3%.

Economists suggest the ECB is getting closer to neutral.

CIBC World Markets says that this latest hike brings the cumulative rate rises to 200 bps in the current rate cycle, and the repo rate now stands at a six year high, at the lower end of what can be considered to be a neutral rate for the Eurozone.

“The European Central Bank President’s remarks at today’s post-meeting press conference confirm our view that the European monetary authorities are not done yet on the rate hike front but overall, the tone of the comments and more importantly the latest growth/inflation forecasts are consistent with our 4.25% peak call,” it says.

“This is a central bank that will be inclined to raise rates again in the not too distant future (we bet on a September move),” CIBC says. “Referring to the Bank’s latest growth and inflation forecasts, it seems difficult to assume much more tightening after September though.”

“The mere fact that inflation is expected back on target by next year and growth a touch weaker than expected is supportive of the view that we are approaching the peak in the current cycle. This may bring some short-term relief to the bond and equity markets while those in the FX markets hoping for a much more hawkish language by Mr Trichet could prove disappointed,” CIBC concludes.

Jitters about higher interest rates knocked North American equities markets lower.

At midday, the S&P/TSX composite index was down more than 200 points at 13,940.17, while the Dow Jones industrial average was off 108.25 points at 13,487.21.