Monetary Policy and Foreign Remittance Inflows in East African Countries: The Moderating Impact of Institutional Quality

Remittance inflows represent a significant form of foreign financial flows to developing countries, and remittances are acknowledged as crucial for economic advancement. This study investigated the effect of monetary policy and its interaction with institutional quality on foreign remittance inflows (FRI) in East African countries in the period from 2003 to 2022. Using a fixed effect model of panel data analysis, the empirical results revealed a negative weak effect of monetary policy rate and exchange rate on FRI while reserve requirements, real GDP, and broad money supply negatively and significantly affected FRI. However, monetary policy variables interacted with institutional quality showed an enhanced impact on foreign remittance inflows. The study recommends that East African countries prioritize strengthening governance structures. East African countries’ central banks should adopt policies that maintain predictable and stable interest rates and exchange rates to reduce the risks associated with currency fluctuations and transaction costs.