FRANKFURT--European Central Bank President Mario Draghi sent a strong signal Friday that the central bank is ready to "step up the pressure" and expand its asset-purchase programs if inflation fails to show signs of quickly returning to the ECB's target.

"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," Mr. Draghi said in a speech to a banking conference.

"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," Mr. Draghi said.

The comments from Mr. Draghi fired up market expectations for aggressive easing measures ahead. The euro dropped by 0.7% to $1.2458 against the dollar, while Italian government bonds hit a record high, with ten-year yields sinking to 2.25%.

Annual eurozone inflation was 0.4% last month, far below the ECB's target of just below 2%.

The ECB has responded to the risks of too-low inflation by cutting interest rates to record lows, issuing cheap bank loans at four-year maturities and initiating programs to purchase covered bank bonds and asset-backed securities. Many analysts expect the ECB to take even more dramatic measures, including large scale purchases of government bonds, in the early part of next year.

The ECB has fanned these hopes by tasking its staff and committees to come up with new stimulus measures in case the current measures prove ineffective.

Much of Mr. Draghi's speech echoed comments that he made at his most recent news conference on Nov. 6. One new wrinkle in Friday's speech was the urgency he signaled in getting inflation higher. When inflation is too low, it makes it harder for households, businesses and governments to finance debts and complicates the economic adjustment process within the 18-member euro bloc.

"It is essential to bring back inflation to target and without delay. Monetary policy can and will do its part to achieve this," he said, adding that other policies outside the central bank's responsibilities such as fiscal policy are needed to boost demand.

Mr. Draghi said that at long-term horizons, expectations of future inflation remain anchored near the level that the ECB sees as consistent with its 2% objective.

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

Write to Brian Blackstone at brian.blackstone@wsj.com and Todd Buell at todd.buell@wsj.com