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. Its ability to perform the latter task has been weakened by high import costs and the need to intervene to support the country's currency peg. These externally driven pressures will persist into 2023, but ought to de-intensify over the course of the year and into 2024.

The MMA achieves monetary stability in part 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 and uses minimum reserve requirements (MRRs) for banks and open-market operations as instruments to control local credit creation and money supply. We expect the MRR on foreign-currency deposits to be raised back to 10% by mid-2023, from 5% at present, as an easing of global commodity prices, coupled with steady tourism earnings, will help to reduce the risk of US dollar illiquidity in the local currency market. The increase is likely to be delivered in two increments of 2.5 percentage points over the first half of next year, matching the rise of the MRR on local-currency deposits to 10% in 2021.