Central Banks

Draghi: We're ready and able to intensify QE

Aggressive monetary policy in the euro zone could be ramped even higher if inflation rates do not return to desired targets, says Mario Draghi, the president of the European Central Bank (ECB).

Speaking in Bologna, Italy, Monday, the central bank chief reiterated his call that the bank stood ready to act and once again added that governments of the 18 countries that use the euro should also be playing their part.

"If the ECB had to intensify the use of its instruments to ensure that it achieves its price stability mandate, it would," Draghi said, according to a transcript of his speech.

European Central Bank President Mario Draghi
Ralph Orlowski | Reuters

The recent recalibration of the ECB's policy tools, announced at its December meeting, means that inflation is likely to return to its objective level without undue delays, he added.

"While monetary policy can deliver price stability, that alone does not guarantee lasting prosperity. To have a structural recovery we need to raise not just current growth but potential growth as well," he added.

"The key to this is higher investment. Investment has been held back in the euro area by three things: weak demand dynamics, the still-high private debt overhang and fragile private sector confidence."

Draghi called on countries to facilitate a "work-out" of toxic loans to aid a stronger recovery in credit and lending and said that it was important the region did not lose site of completing its monetary union.

The ECB announced a number of changes to its monetary policy on December 3 in an effort to fend off sluggish inflation and boost lackluster growth.

As well as cutting its key deposit rate further into negative territory, Draghi also announced that bank would extend its massive 60 billion euro ($63.5 billion) a month bond-buying scheme to at least March 2017.

It also said it would also reinvest the principal payments on the securities purchased under the quantitative easing plan, which he said would help liquidity conditions as well as including regional and local euro area debt in the program.

However, it stopped short of expanding the amount of bonds purchased by the bank each month. This disappointed market-watchers who were anticipating a deeper cut to interest rates.

The euro jumped sharply against the dollar after the announcements from Draghi, seeing its biggest one-day gain since March 2009. Equities in the region slumped, with the Euro Stoxx 600 benchmark closing 3.1 percent lower on Thursday.

Mario Draghi
Draghi: 'No particular limit' to ECB policy tools

Analysts were left questioning whether Mario Draghi had been reined in by the more hawkish members of the ECB. Jens Weidmann, a governing council member and the president of Germany's Bundesbank, argued afterwards that the latest round of monetary easing from the bank was not needed.

In an interview with German newspaper Bild he said that the latest economic data confirmed his view that the sharp decline in energy prices supported the single currency region's economic recovery and that the close to zero inflation is in great part due to the low oil price.

Draghi, himself, spoke again on the Friday following the rate decision, telling an audience in New York that the accommodative central bank policy could be adjusted "at any time" to meet goals. Sounding a dovish tine, he said the ECB's easy policy is having its "intended" effects, and the bank sees "no particular limit" to how it can use tools. He added that the central bank would "no doubt" intensify policy like its quantitative easing program, if needed.

—CNBC's Jacob Pramuk contributed to this article.