'Vigorous' inflation recovery still needs low rates: ECB's Draghi

BRUSSELS (Reuters) - The recovery in inflation expected by the European Central Bank is conditional on market interest rates staying low through the summer of next year, ECB President Mario Draghi said on Monday.

Draghi described an acceleration in underlying inflation in the euro zone as "relatively vigorous" and expressed confidence that a pick-up in wage growth would continue.

But he reaffirmed the ECB's pledge to keep rates at their current, rock-bottom level "through the summer" of next year, implicitly rebuffing calls from some policymakers to tighten policy more quickly.

"The path of inflation that the Governing Council viewed as moving closer to the objective of a sustained adjustment was -- and still is -- conditional on a term structure of interest rates that embodies expectations of constant policy rates over an extended period of time after December 2018," Draghi told the European Parliament.

The ECB's message on rates has been subject to different interpretations by investors and even policymakers, some of whom rule out a hike until the autumn of 2019 while others see scope for a rate increase in the summer.

Austria's central bank governor Ewald Nowotny said in an interview published on Sunday he would welcome moving the ECB's deposit rate towards -0.2 percent from -0.4 percent now.

Money market investors beefed up their bets on a rate hike in October 2019 after Draghi's words, while the euro and bond yields rose.

Benoit Coeure and Peter Praet, two influential members of the ECB's Executive Board, said last week the central bank would need to start clarifying next year the likely path of its interest rates beyond its first hike.

PROTECTIONISM AND BREXIT

Draghi said an increasingly bitter trade dispute between the United States and China was probably affecting confidence and would have a big impact on the euro zone if the protectionist measures that have been announced are implemented.

The United States and China imposed fresh tariffs on each other's goods on Monday and U.S. President Donald Trump reiterated a threat to impose further tariffs on Chinese goods should Beijing retaliate.

"For the time being, we don't know what the final size of all this will be, but we know it's going to be big and we should do our best to be prepared," Draghi said.

He sounded more sanguine on the consequences of a hard Brexit -- political jargon for a divorce between Britain and the European Union without an agreement on their future relationship.

But he singled out the clearing of financial contracts -- which include trillions of euros worth of derivatives based on the single currency but processed in London -- as an area of concern.

"If there is a sudden event, (an) unprepared hard Brexit of the sharpest kind, we have to see how the many contractual positions are going to be regulated after that," Draghi said.

(Reporting By Francesco Canepa; Editing by Matthew Mpoke Bigg and Catherine Evans)