To improve foreign exchange availability and enhance liquidity within the banking sector, the Maldives Monetary Authority (MMA) has reduced the Minimum Reserve Requirement (MRR) for foreign currency deposits from 7.5% to 5%, effective from 24th July 2025, Thursday. This adjustment is expected to inject approximately USD 45 million in immediate liquidity into the financial system, enabling commercial banks to extend more foreign currency-denominated loans.
The MRR is a core monetary policy instrument used by the central bank to regulate systemic liquidity and ensure financial stability. It requires banks to maintain a designated percentage of their total customer deposits, whether in Maldivian Rufiyaa or foreign currency with the MMA. These reserves are not available for lending or investment and serve as a crucial safeguard against liquidity shocks and inflationary pressures.
According to MMA officials, the latest revision applies solely to foreign currency deposits, while the MRR for Rufiyaa deposits remains unchanged at 10%. This marks the first amendment to the foreign currency reserve requirement since October of the previous year, when it was reduced from 10% to 7.5%.
The decision comes amid intensified efforts by the central bank to alleviate foreign currency shortages and address growing demand for U.S. dollars across the commercial sector. Parallel market rates for the U.S. dollar have recently surged to MVR 20, prompting the MMA to recalibrate its policy mix to stabilize the foreign exchange environment and strengthen business confidence.
As part of these broader interventions, the MMA has also increased the allocation of U.S. dollars to local commercial banks for trade-related transactions such as Telegraphic Transfers (TT) and Letters of Credit (LC). This move is expected to increase the availability of foreign currency for commercial purposes by up to 40%, offering considerable relief to importers and small to medium-sized enterprises (SMEs).
The MMA’s latest data shows that with recent amendments to the Foreign Exchange Act, banks are now mandated to allocate 30% of foreign exchange sales to SMEs. However, the central bank has set a target of increasing this figure to 50%, in line with its goal of ensuring more inclusive and broad-based access to foreign currency for businesses.
Interest rates on reserve balances will remain modest, with Rufiyaa reserves yielding 1% and U.S. dollar reserves earning 0.01%, as per the MMA’s policy framework. Although the differential is minimal, it underscores the MMA’s dual approach, preserving monetary discipline while also promoting liquidity expansion where needed.
Beyond reserve requirement adjustments, the MMA employs a comprehensive set of monetary tools to manage macroeconomic stability. These include open market operations, fine-tuning of the policy interest rate, and strategic interventions in the foreign exchange market. These measures are designed to mitigate inflation risks, maintain the purchasing power of the national currency, and support long-term economic growth.
The central bank has reaffirmed its commitment to maintaining proactive and responsive monetary governance. By adjusting policy levers in line with market realities, the MMA seeks to create an enabling environment for commercial activity, particularly for businesses requiring foreign currency access in a tightly managed exchange regime.
The latest MRR reduction represents a calibrated step in ensuring that the financial system remains resilient and responsive to evolving economic conditions, especially at a time when foreign exchange constraints are increasingly impacting commercial and consumer sectors. It also reflects a focused policy direction aimed at reinforcing investor confidence and supporting the Maldives’ broader fiscal and economic development objectives.
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