SINTRA, Portugal, June 27 (Reuters) - The European Central Bank should adjust policy only gradually as the euro zone still needs "considerable" monetary support despite a stronger recovery in growth and inflation, ECB President Mario Draghi said on Tuesday.
Draghi also hinted at possible tweaks to ECB policy, which includes massive bond purchases and ultra-low interest rates, but said any change would depend on favourable global financing conditions.
"As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments not in order to tighten the policy stance, but to keep it broadly unchanged," Draghi told an ECB conference in Sintra, Portugal.
He said inflation was still being held back by commodity price shocks and labour market slack so ECB stimulus was still needed and would only lead to a gradual rise in prices.
The comments support market expectations that the ECB will continue to adjust its guidance in the coming months but only by the smallest of increments, preparing the way for an eventual exit from stimulus.
Fighting ultra low inflation, the ECB has kept interest rates deep in negative territory for years and buys 60 billion euros ($67.4 billion) worth of bonds each month, all in the hope of inducing spending to generate growth and eventually inflation.
"All the signs now point to a strengthening and broadening recovery in the euro area. Deflationary forces have been replaced by reflationary ones," Draghi said.
"However, a considerable degree of monetary accommodation is still needed for inflation dynamics to become durable and self-sustaining," he added.
Draghi pointed out that commodity price weakness is keeping inflation low, while residual labour market slack, not accurately reflected in jobless data, is keeping wage growth anaemic, also capping consumer price growth.
"While these various reasons might delay the transmission of our monetary policy to prices, they will not prevent it," Draghi said.
The ECB's asset buys are set to run until the end of the year and the bank will have to decide in the third quarter whether to extend the purchases or wind them down. ($1 = 0.8898 euros) (Reporting By Francesco Canepa and Balazs Koranyi; Editing by Susan Fenton)