The Maldives Monetary Authority (MMA) has announced a reduction in the minimum reserve requirement (MRR) for foreign currency deposits held by commercial banks, lowering it from 7.5 per cent to 5 per cent.

The decision, made public on Thursday, is aimed at enhancing dollar liquidity within the banking system and expanding the lending capacity of commercial banks. According to the central bank, the move will make an estimated USD 45 million available for lending.

The MRR refers to the minimum portion of customer deposits that commercial banks are required to hold with the central bank. These reserves are maintained to regulate money supply and ensure economic stability. Banks are required to keep a fixed percentage of both Maldivian Rufiyaa and foreign currency deposits with the MMA.

While the MRR on foreign currency has been reduced, the requirement for Rufiyaa deposits remains unchanged at 10 per cent. As a result, the MMA emphasised that the decision will not increase the supply of Rufiyaa in the domestic economy.

The central bank stated that the revised reserve ratio is expected to strengthen the flow of foreign exchange and increase the lending capacity of banks in US dollars. It also noted that the economy has been growing steadily following the pandemic, resulting in rising demand for foreign exchange, particularly for imports and key sectors such as health services and education.

This policy adjustment follows a recent move by the MMA to raise its US dollar support to local banks by 10 per cent to improve access to foreign currency for businesses engaged in imports and other essential transactions.