MMA cuts minimum reserve requirement for dollar deposits to 5%

The Maldives Monetary Authority (MMA) has reduced the Minimum Reserve Requirement (MRR) for foreign currency deposits from 7.5% to 5%, effective Thursday.

The MRR is a monetary policy instrument used by the central bank to regulate liquidity in the banking system. Commercial banks are required to maintain a certain percentage of their total deposits — both in Maldivian rufiyaa and foreign currency — with the MMA. This percentage may be adjusted based on prevailing economic conditions.

According to the MMA, the latest change in the foreign exchange MRR has been introduced to ease foreign currency liquidity constraints in the banking sector. The adjustment is expected to increase the availability of foreign exchange, thereby enabling banks to issue more loans in foreign currency.

"The change will provide banks with approximately USD 45 million in additional liquidity for immediate lending purposes," the MMA stated.

The central bank clarified that the revision applies only to foreign currency deposits. The MRR for rufiyaa deposits remains unchanged at 10%.

This is the first adjustment to the foreign exchange MRR since October last year, when the MMA reduced the rate from 10% to 7.5%.

The decision follows recent efforts by the MMA to address shortages in foreign currency availability. On Tuesday, the MMA announced an increase in the allocation of dollars to commercial banks for Telegraphic Transfers (TT) and Letters of Credit (LC) related to imports. The increased allocation is expected to raise the volume of dollars sold to businesses by up to 40%.

The MMA also continues to implement other policy measures to manage liquidity and contain inflation. These include open market operations, adjustments to the policy rate, and coordination with fiscal authorities.

The exchange rate for the US dollar has risen to MVR 20 in the parallel market, prompting the central bank to take steps to increase dollar availability and maintain confidence in the banking sector.