MMA tightens monetary policy to reduce excess Rufiyaa liquidity

The Maldives Monetary Authority (MMA) has announced a tightening of monetary policy aimed at reducing excess Maldivian Rufiyaa liquidity in the banking system, as the parallel market exchange rate for the US dollar reached record levels.

The central bank said its board had approved a series of measures designed to absorb surplus Rufiyaa from circulation and support monetary stability.

The move comes as excess Rufiyaa liquidity relative to the availability of US dollars has contributed to a rise in the parallel market exchange rate, with the US dollar trading above MVR 21. Higher foreign exchange costs have also contributed to increases in import prices and inflation.

According to the MMA, the two main policy measures are an increase in the Minimum Reserve Requirement (MRR) for commercial banks and adjustments to Open Market Operations (OMO).

Under the revised policy, the Rufiyaa MRR will increase in phases. The reserve requirement will rise from 10.5 per cent to 11.0 per cent from September.

The central bank also said the reserve requirement will be reviewed quarterly from next year, with the aim of increasing the MRR to 13 per cent by December next year.

The MMA further announced a 10-basis-point increase in the policy absorption rate used in its Open Market Operations.

The central bank introduced Open Market Operations in July last year to manage liquidity in the financial system.

According to the MMA, the programme had absorbed an average of MVR 2.7 billion from the market as of last month.

The authority also said short-term market liquidity had been reduced from MVR 6.5 billion to MVR 3.7 billion through these operations.