By Steven Scheer and Ari Rabinovitch
JERUSALEM (Reuters) - The European Central Bank is "ready to act" if need be to aid the euro zone economy and recent signs of market stabilization mean that its interest rates are becoming a more effective tool again.
Speaking at a farewell conference for Bank of Israel Governor Stanley Fischer in Jerusalem, Draghi said there were numerous measures the ECB could and would deploy if needed.
The euro fell after his comments, which broadly reiterated the bank's commitment at last month's policy meeting to take action if necessary.
Draghi said the calming effect of the ECB's government bond purchase program on markets as well as economic reform had eased the emergency settings which have undermined its ability to affect costs of borrowing for companies and households.
"We have been able to regain better control of monetary conditions in the euro area economy, which is very important for providing the appropriate monetary policy impulse to the economy," Draghi said in a speech.
The ECB held interest rates unchanged at a record low of 0.5 percent at its June policy meeting, but said it had discussed a raft of options it could deploy should the economy need more stimulus.
Draghi said the euro zone economy was still in a phase of adjustment, but recent survey data suggested some improvement, but from low levels.
"In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and stand ready to act if necessary," Draghi reiterated.
Some of the measures may have unintended consequences, but this did not mean that they should not be used, Draghi said.
In the past the ECB has referred to possible unintended consequences from cutting the deposit rate below its current level of zero, which would effectively mean charging banks for parking their funds overnight at the ECB.
"There are numerous other measures - standard interest rate policy and non-standard measures - that we can deploy and that we will deploy if circumstances warrant," Draghi said.
"We will look with an open mind at these measures that are especially effective in our institutional setup and that fall within our mandate," he added.
Referring to the effectiveness of central bank actions when interest rates were close to zero, Draghi said: "I do not think that we are materially challenged in our ability to deliver our objective of price stability by the low level of interest rates."
(Writing by Eva Kuehnen; editing by Patrick Graham)