The Maldives Monetary Authority (MMA) has announced a series of monetary tightening measures aimed at reducing excess liquidity in the domestic economy, as the rufiyaa continues to face pressure against the US dollar and foreign reserves remain under strain.
According to a statement issued by the central bank, over MVR 7 billion in surplus liquidity has accumulated in the financial system, driven by government overdrafts and the reclassification of short-term liabilities into long-term bonds during the previous administration. As of June 2025, the total money supply reached MVR 64.5 billion, marking a 10.7 percent increase compared to the same month last year.
The MMA attributed the liquidity surge to several key trends: a 178 percent rise in liquidity since April 2020, an 18 percent increase in bank rupee deposits year-on-year, and a marked uptick in rupee-denominated loans. Meanwhile, lending in foreign currency has slowed. Bank investments in government securities rose 20.9 percent, while overall loan disbursements to the private sector climbed by 6 percent.
This growing disparity between domestic currency activity and slower foreign currency flows has placed further pressure on the exchange rate. The rufiyaa is currently trading at MVR 20 per US dollar.
To curb this imbalance, the MMA reintroduced Open Market Operations (OMO), a key tool used to absorb excess liquidity. On 23 July, it conducted a reverse repurchase operation that withdrew MVR 2.1 billion from the banking system. The authority stated that further actions would be taken as needed to preserve monetary stability and the value of the rufiyaa.
At the same time, the central bank revealed that foreign reserves are being rapidly drawn down to service government debt and essential imports. By July, USD 213 million (MVR 3.3 billion) had been withdrawn from reserves for debt repayments, a 60 percent increase compared to the same period in 2024. An additional USD 274 million (MVR 4.2 billion) was used to fund critical imports such as fuel, staple foods, and medicines.
Although foreign currency inflows from tourism-related taxes and fees were up 30 percent in the first seven months of 2025 compared to the previous year, the MMA reported that gross reserves stood at USD 832 million as of June, with usable reserves at just USD 202 million.
The authority noted that reserves had steadily declined from 2021 until hitting USD 371.2 million in September 2024, but have since shown signs of recovery, supported by improved tax collection, stricter enforcement of foreign exchange regulations, and new currency swap agreements.
The central bank has also expanded dollar sales through the banking system, facilitating USD 217 million in transactions this year to cover private sector and public needs, including medical treatment, education, and overseas travel.
With foreign debt levels rising as a share of GDP, and fuel imports continuing to represent a significant proportion of total imports, averaging 49 percent between 2022 and 2024, the MMA’s efforts underscore the growing urgency of managing both liquidity and external sector vulnerabilities.
