Riksbank highlights the risk the ECB is creating for other economies

Often a precursor to an announcement from the ECB, Sweden's central bank Riksbank assessments of the economy, inflation and international events affecting its currency, the Krona, are ordinarily interpreted as steps towards aligning it's monetary policy closer to its counterparts in Europe with the most notable being the European Union in having the greatest influence on the Nordic nation.

So you can imagine the reaction of market participants when governor Stefan Ingves reiterated that the central bank was ready and able to reopen it's monetary toolbook if further expansionary policy was needed to avert a short lived weakness in it's currency due to the actions of the ECB.

The central bank went on to say the uptick in both inflation and economic activity were positives for the country saying it was producing the desired effects that were intended from the use of an unconventional yet radical approach of negative interest rates which has caught on in a number of advanced economies.  

Riksbank Reiterates Readiness To Do More https://t.co/C68PQgitDg

— Livesquawk (@Livesquawk) September 7, 2016

Its use amongst some of the most trusted central banks in the world has called into question the integrity and perhaps desperation these policymakers who are willing to go to extreme lengths in reaching their economic objectives. Although not tested, the potential pitfalls of such policies will only be seen after the damage has been done which could be little to late.

The commentary provided by Riksbank in relation to this highlights the additional risk being introduced into the financial system as a result. With an economy 25 times larger than Sweden's the European Union's armoury needed to defend it's economy from the contagion of deflation would be so much larger.

It goes without saying that the money creation process needed to avoid a crisis in the EU is to such an extent it adversely impacts the positioning of the Swedish Krona against the Euro with the only response that can be used by Riksbank is to imitate the actions of the ECB.

This only serves to further supply liquidity to an existing global economy that's become distorted by the years of low rates and excess money.