By Francesco Canepa and Balazs Koranyi
FRANKFURT/WASHINGTON (Reuters) - The European Central Bank intends to push on with its aggressive stimulus policy of negative interest rates and massive bond buying until it is happy with the outlook for euro zone inflation, two of its most senior officials said on Thursday.
The ECB has spent over a trillion dollars buying bonds in an effort to boost inflation, but this is still just above zero and is not expected to reach the ECB's target of almost 2 percent for at least two years.
ECB chief economist Peter Praet said that taking away the stimulus early, a prospect that has rattled bond markets this week, would stall the economic recovery and that the ECB remains committed to providing stimulus.
"We therefore remain committed to preserving the very substantial amount of monetary support that is embedded in our staff projections and...remains necessary to secure a return of inflation to (target)," Praet told an event in Washington.
Vice President Vitor Constancio said a Bloomberg report suggesting that there was already consensus among ECB rate setters to reduce the 80 billion euros ($89 billion) monthly bond purchases was mistaken.
"It's not correct, period," he said of the article in an interview with Market News. "(The purchases) will go on until we are satisfied that inflation is truly on the path to our objective, and at least until March of next year."
Earlier in the day, minutes of ECB's Sept 7-8 policy meeting showed that rate setters agreed the euro zone's economy needs continued monetary stimulus as underlying price growth showed no sign of a strong recovery.
The rate setters reiterated their willingness to act to bring inflation back to their target "without undue delay" and "using all the instruments" they have.
This included addressing a potential shortage of eligible bonds.
"It was underlined that the Governing Council could adjust the parameters of the program at any time to achieve the intended amounts," the ECB said in the minutes.
"There should be no doubt about the Governing Council's determination to execute its asset purchases in line with its past decisions and to adopt further measures, if needed, to fulfil its price stability objective."
ECB President Mario Draghi said after the September meeting the bank would look at ways to ensure the bond purchases could carry on smoothly.
The minutes contained no indication as to what these options may be but Praet told the meeting any change to the scheme had to be judged based on its effectiveness for monetary policy.
Market analysts have speculated the ECB could buy equities but this move would have a limited impact on the real economy as the stock market only accounts for a small portion of the euro zone's corporate sector.
Sources told Reuters earlier this year the ECB would likely consider raising a limit on how much of each bond it can buy or relaxing a rule that stops it from buying bonds that yield less than its deposit rate, currently at -0.40 percent.
These changes would help the ECB buy more of the negative-yielding short-term German paper that analysts fear it will run out of.
ECB rate setters acknowledged the sluggish euro zone recovery was dragged down by some factors beyond their reach, such as technological advances and an aging population.
"Members felt that the reasons behind the hesitant recovery in business investment needed to be better understood in conjunction with persistently high corporate savings, the role of uncertainty and other factors, such as technology and demographic developments," the ECB said in the minutes.
Although super low ECB rates have cut funding costs and all but wiped out incentives to save, borrowing by businesses and households in many places remains stubbornly low.
That suggests the monetary transmission mechanism has broken down, at least in part, and the ECB will not get the anticipated "bang" for the money it has spent buying assets.
In addition, ECB policy makers said globalization was keeping the price of some industrial goods low, meaning any long-term pick-up in euro zone inflation depended on services - a sector where productivity and wage growth is low.
(Reporting By Francesco Canepa; Editing by Jeremy Gaunt)