(Reuters) - European Central Bank President Mario Draghi threw the door wide open on Friday for more dramatic action to rescue the euro zone economy, saying “excessively low” inflation had to be raised quickly by whatever means necessary.

Draghi said there was now no sign of economic improvement in the months ahead and said the ECB would expand and step up its program to pump more money into the currency bloc if its current measures fell short of lifting inflation.

"We will continue to meet our responsibility – we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us," Draghi said in a speech at an annual banking congress.

"If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases."

Draghi had said on Monday further measures could involve large-scale purchases of government bonds, also known as quantitative easing - a step that is particularly opposed in the bloc's largest economy, Germany, for fear of mutualizing risks. His latest comments pushed 10-year government bond yields in heavily-indebted Italy to a new all-time low, and shoved the euro back down towards $1.24, while European shares extended gains.

"These strong comments show that further monetary easing is on the cards and could happen soon. The question is how that will look," said Nick Kounis, an economist with ABN Amro.

Draghi's remarks were almost as dramatic as his "whatever it takes" speech in the summer of 2012 with which he pulled the euro zone back from the brink.

Having earlier in the week pointed to early signs of improvements, Draghi on Friday said the economic situation remained difficult and the latest business survey suggested a stronger recovery was unlikely in the coming months.

"Over shorter horizons, however, indicators have been declining to levels that I would deem excessively low," he said.

The euro zone economy has been mired in low growth and weak inflation for months. The ECB is trying to unblock lending to households and companies by flooding the market with billion of euros through purchases of securitized private debt.

But should these not be enough to bring inflation - now at 0.4 percent - back to its medium-term target of just below 2 percent, Draghi said the ECB would recalibrate the size, pace and composition of our purchases as necessary.

"This is why the Governing Council has tasked ECB staff and the relevant Eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed."

This could include the purchasing of sovereign bonds.

The head of Germany's powerful Bundesbank, Jens Weidmann, is due to speak later at the same congress. He is one of several opponents to QE on the ECB policy-making Governing Council.