ECB policy setters warn of threat as Draghi shows ready to act

By John O'Donnell and Balazs Koranyi

FRANKFURT (Reuters) - Investors may be losing confidence in the European Central Bank's ability to keep prices rising, a top policy-setter said on Thursday, another suggestion the central bank remains ready to move.

Vice President Vitor Constancio said surveys showed confidence was waning that the ECB could get inflation close to its target of 2 percent annually. That echoed earlier remarks made by an ECB policy setter from Belgium, Jan Smets.

President Mario Draghi also warned about the risk to price stability, essentially expressing the same concern and showing willingness to examine ways to intensify its programme that includes money printing to buy bonds.

Draghi has already signalled possible action to further loosen the supply of money when central bank policy setters meet on Dec. 3.

Constancio's comments are significant because they refer to the threat of an evaporation of trust in the ECB to keep the economy on track. They could show increased readiness to act by extending a one trillion-euro-plus programme of buying chiefly government bonds.

"Recent evolutions of ... measures tend to raise some concerns of a de-anchoring of long-term inflation expectations," Constancio told an audience in Frankfurt.

Speaking in Milan, Draghi also addressed the risk that a weakening global economy "hamper a return to price stability in the medium term".

Consumers and businesses who expect prices to stagnate would be likely to postpone buying and to keep wages low. Central bankers fear this could become a deflationary vicious circle that would suffocate the economy, seeing confidence further unravel.

(Replaces dropped word in final paragraph.)

(Writing by John O'Donnell, editing by Larry King)