Remittances; funds sent by foreign workers to their home countries, are very much important to the economic growth of developing countries. The monetary policy of the country deals with the issues of inflation rates by increase and decrease in the money supply typically by the central banks. The relation between remittances and monetary policy is crucial especially for the developing nations because fluctuations in the monetary policy can make some serious changes to the remittances.
The connection between Remittance flows and monetary policy is established through interest rate structure, exchange rate management, financial stability, the efficiency of the payments system, general economic stability, as measured by inflation and of course, the extent of independence of policy actions from global economic realities. The economic conditions undergoing several numbers of changes in the host country are important for the recipients of the funds. The influence starts from a point of exchange rate stability which contributes to the appreciation or depreciation of the receiving country’s currency will have a crucial impact on the remittances. Currency appreciation and depreciation depend upon the monetary tools of the economy and this impacts the remittance received by families and how much their living standards are changing with the help of remittance funds.