Interest rates are turning into a political tool

Think about it: if politics starts messing with the money supply, economic stability could just be a dream. Central banks are supposed to keep interest rates neutral, but their decisions can definitely sway inflation and how people feel about the government. When election time rolls around, governments want low rates and growth, but central banks are worried about inflation. This creates a tug-of-war that becomes a political battle. The opposition can easily blame the ruling party for economic struggles due to poor management, without mentioning the central bank's role. In some developing nations, if the ruling party can control the central bank, interest rates might drop during election season, giving the impression of growth and hope for a brighter future if they get re-elected. Do you think interest rates are more about politics than economics now?

We see that these days interest rates are not only governed by economic rules, but are also determined by political will. After the fall of a government, we see financial institutions facing losses. Because banks distribute huge amounts of loans to the leaders and workers of the previous government and when the government falls, most of the leaders and workers leave the country, causing financial institutions to default on large loans. The government wants the interest rates to be low before the elections to please the people, so that the market looks strong. But it is seen that the central bank wants to increase the rates to control inflation. Politics affects the economy in this tension. Besides, in many developing countries, we see that interest rates are reduced before the elections to pretend to improve. Now interest rates have become a drama.

Fast emerging? Only if you've been asleep for the last few decades or more. You'd need to be more specific about which country you are talking about because there are clearly governments out there, maybe just specific political parties, that are worse offenders than others. If you look at Turkey for example, they had a crisis in the last few years because Erdogan got far too involved in setting interest rates against the advice of his central bank - which lost all independence and undermined the currency even further. The central bank in America has come under persistent attacks by Trumps even those it's having to cope with his erratic economic policies which cause a lot of instability in the economy. General best practice states that a well governed central bank should set policy completely independent of fleeting politicians.

Interest rates are indeed the most efficient political tool in a democratic era where political costs are high and the interest rate game is a non-confrontational policy (camouflaging political control). The reason it is a game of choice for oligarchs and central banks is because it influences the price of money, the heart of the economy. Its effects are massive and cross-sectoral and across classes, and policies can be made without lengthy bureaucracy. In the current narrative war, interest rates are the sole indicator of economic confidence because they play a psychological role in shaping public perception. The government sends direct signals to the market; interest rate fluctuations do not trigger protests like tax or subsidy policies do. For those who don't understand, these are considered rational and professional decisions (even though they are politically charged). With a little narrative spice, such as fighting inflation or encouraging growth, the public doesn't react (because they don't understand). In fact, interest rates provide numerous benefits to oligarchs by attracting capital flows, dominating the currency, and stabilizing financial power. Political Business Cycle Theory (Nordhaus, 1975) discusses how governments manipulate monetary policy (especially interest rates) ahead of elections by pressuring central banks to lower interest rates, which then leads to economic growth, unemployment declines, and the public's happiness. In fact, after the election, interest rates were raised again to suppress inflation. With the sole political goal of short-term prosperity and long-term pain, as long as election victory is secured. https://adambrown.info/p/notes/nordhaus_the_political_business_cycle

Of course it has always been said that he who goes borrowing goes sorrowing, the interest rate that is being added is an economic and political strategy in a bid to keep you struggling as a citizen if you decide to go for loan, some of these practices were learned and perfected from most of the Central Bank through their involvement with IMF, as they are one body that is very good in giving financial advices that will later turn out to be bad economic decision.  Before a ruling government can signal the Central Bank to reduce interest rate, that economy must be high in production, but then if it is an import based economy, the government can only do little in terms of reducing the interest rate.

Of course interest rate is influenced by the government of the day, In most developing countries politicians dictates the time at which things go in the country of which monetary policy formulation is involved, setting of the interest rate which is always influenced by the central bank of the country. But in a situation were politicians appoints the head of the central bank it's certain that there is definitely going to be an influence on the policies that will be taken by the central bank of such a country. Government can use harsh monetary policies to Chase away potential investors or even use it against perceived political enemies which may not be in favour with them. Because the type of interest rate set by a country will determine the quality of investment that will come into such a country.

Interest rates are economic tools that should aim to help the economy of any state, but as rightly said, it can indeed be highjacked by politicians to use to their favor in achievement of their political goals. Therefore, it actually matters how the government of a place uses their interest rates to balance the society at large, because as  they can be used in a lesser political setting, it can also be used greatly in a highly politicized environment as an economic edge over opposition and it is the poor masses who get to suffer more.

It's not something new. Economics and politics have been walking side by side since a long time ago (maybe since always). Politicians and governments are constantly manipulating the economical scenario of the countries they rule through money printing, introduction of new taxes, increasement of their personal and judiciary's wages. In 2016, we even had impeachment of Brazil's president for "fiddling with public accounts" during the period of time close to the 2014's election in order to boost the reelection. In such matters everyone on the top of the pyramids are partners working cooperatively, until the scheme gets busted, so everyone starts pointing fingers to each other in an attempt to convince the mass of fools (population) to focus their rage against a sole scapegoat.