MMA absorbs MVR 3 billion from market amid rising liquidity concerns

The Monetary Authority of Maldives (MMA) has withdrawn MVR 3 billion through open market operations to reduce surplus liquidity in the banking system.

The central bank relaunched its reverse repurchase operation on July 23 last year after more than a decade.

This is a strong move aimed at mitigating pressure on the Rufiyaa’s exchange rate caused by increased surplus liquidity in the market and the resulting rise in demand for foreign currency.

As a result of these operations, surplus liquidity in the banking system fell by 39 percent by the end of June last year.

According to the MMA, surplus liquidity averaged MVR 7 billion in June last year. By the end of June this year, the figure had been reduced to around MVR 4 billion.

The MMA has decided to take additional measures to tighten monetary policy in order to control the increased amount of money in the economy and maintain the value of the Rufiyaa.

The two key steps approved by the MMA board are raising the minimum reserve requirement (MRR) for banks and further expanding the scope of open market operations (OMOs) to reduce money in circulation.

In line with the decision, banks will raise the MRR from 10.5 percent to 11.0 percent starting next month.