Maldives Monetary Authority (MMA) has introduced new monetary policy measures aimed at reducing excess Rufiyaa liquidity in the economy and strengthening control over the amount of money circulating through the banking system.

The central bank said its board of directors has approved two measures to tighten liquidity conditions.

Commercial banks will be required to maintain higher minimum reserves with the MMA, while the authority will also expand its open market operations to withdraw excess funds from the financial system.

The MMA said an average of USD 175.10 million worth of excess Rufiyaa liquidity was withdrawn through open market operations between their resumption in July last year and July this year.

As a result, short-term liquidity in the banking system fell to approximately USD 239.95 million, down from USD 421.53 million previously.

The central bank said the latest measures are intended to further reduce excess liquidity and improve monetary conditions.

According to the MMA's assessment, the buildup of excess currency was partly linked to the previous administration's suspension of the National Fiscal Responsibility Act and subsequent use of monetary financing to fund government borrowing.

MMA figures indicate that approximately USD 531.78 million was created through monetary financing over a three-year period.

The practice began during the COVID-19 pandemic in 2020 and continued through 2021, when the government had cited the economic crisis as justification.

The central bank said monetary financing continued into 2022 and 2023, contributing to increased Rufiyaa liquidity and greater demand for US dollars.

The latest policy changes form part of the MMA's broader efforts to manage liquidity and maintain monetary and financial stability.