MMA Withdraws MVR 2.1 Billion in Excess Liquidity Injected by Previous Administration

In a significant monetary policy move aimed at addressing currency volatility and excess liquidity, the Maldives Monetary Authority (MMA) has initiated an Open Market Operation (OMO), beginning with a Reverse Repurchase Operation (RRO) that has withdrawn MVR 2.1 billion from the banking system as of July 23.

The central bank stated that this move is part of a broader strategy to curb the negative impact on the Maldivian rufiyaa (MVR) exchange rate, which has come under pressure due to excess money circulating in the economy. According to MMA, the goal of the operation is to absorb between MVR 2 to 3 billion from the system through short-term monetary instruments such as reverse repos.

The decision follows MMA’s internal assessment which found that liquidity in the Maldivian banking system had surged by 178 percent since 2020. Despite a brief decline in liquidity last year, the trend reversed in 2025, driven largely by the issuance of Treasury Bills (T-Bills), Treasury Bonds (T-Bonds), and an increase in local currency-denominated loans. As of June, the average excess liquidity in the banking system stood at MVR 7 billion—marking a 2 percent year-on-year increase.

MMA further disclosed that approximately MVR 14 billion in government obligations—money printed and injected into the economy over several years—is still being repaid to the central bank. A large portion of this money printing occurred during the COVID-19 pandemic under the administration of former President Ibrahim Mohamed Solih, initially as an emergency measure to sustain government spending amid plummeting revenues. However, the practice continued until 2023, contributing to liquidity build-up and increased demand for foreign currency.

The central bank noted that MVR deposits surged significantly starting April 2020, coinciding with the overdrawing of the Public Bank Account (PBA). There has been an 18 percent year-on-year increase in these deposits until June 2025, MMA stated, while highlighting that foreign currency deposits have trended downward since 2022.

This shift, according to MMA, has adversely impacted foreign loan transaction rates, which have seen a marked decrease. The authority warned of cascading consequences for the MVR exchange rate, exacerbated by growing local currency deposits, rising loan volumes, and persistent liquidity overhang.

Given the Maldives' heavy dependence on imports, fluctuations in foreign exchange and global commodity prices directly affect domestic market stability. MMA emphasized that price volatility and inflation are further influenced by government policy shifts in areas such as subsidies, tariffs, and taxation. The Bureau of Statistics reports that inflation stood at 3.8 percent as of mid-2025, with a 12-month average of 3.6 percent.

MMA stated that future operations under the OMO framework will continue as needed to manage monetary conditions, signalling a tighter stance aimed at maintaining macroeconomic stability amid mounting currency and inflationary pressures.