The primary job of the Maldives Monetary Authority (MMA, the central bank) is to maintain price stability, although legislation also tasks it with preserving an adequate level of international reserves and promoting non-inflationary economic growth. The MMA achieves monetary stability partly through the peg between the currency (the rufiyaa) and the US dollar. In view of this peg, the MMA has little scope to conduct independent monetary policy.

The MMA uses minimum reserve requirements (MRRs) for banks and open-market operations as an instrument to control local credit creation and money supply. In June 2021 the MRR on local-currency deposits was increased to 10% from 7.5%-a level which had been maintained in 2020 to avoid a liquidity crunch during the pandemic. We expect this requirement to be replicated for foreign-currency deposits in 2022, when a more durable recovery in inbound tourism is expected to reduce the risk of dollar illiquidity. The increase from the current level of 5% will probably occur in two increments of 2.5 percentage points each.