Many people apparently think that Central Banks have a lot of power to shape the economy; they haven't. The market is not really subject to control by politicians either, although their activities can often change the timing of events, and speeches can influence when and if buyers will buy or postpone buying.
..... Raising interest rates reduces the amount of borrowing, and therefore the amount of money in the system, and therefore less auction effect by buyers; this reduces the threat of coming inflation. It also attracts more investors, and the buying by foreigners of more of the country's currency will tend to raise the value of the currency.
..... When the value of the currency, on the contrary, goes down, then more investors will tend to dump that currency sooner or later, which has the effect of pushing the value of the currency down even further, leading to raising of interest rates by Central banks.
..... When the currency's value goes down, the exporters are happy, the competition from other countries will have less effect, more people will be buying home-made, not Asian-made, stuff, and that causes less unemployment, which in turn causes more buying, and therefore a better future economic climate.
..... Deficits mean more borrowing, and that may cause inflation in time, because of more buying.
..... So, you see, there are many variables involved, with a lot of interactions, including the effect of various +ve or -ve time delays, making it very difficult, perhaps even impossible, to predict the future of the economy, and hence of the politicians that will be either (re-)elected or dumped by the voters in the future elections.
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