Maldives Monetary Authority (MMA) has decided to increase the amount of Maldivian rufiyaa reserves commercial banks are required to hold with the central bank in an effort to reduce excess liquidity and money circulating in the economy.

MMA said its board had decided to reduce surplus rufiyaa liquidity by increasing the minimum reserve requirement (MRR) and expanding open market operations (OMO).

From next month, banks will be required to maintain 11 percent of their rufiyaa deposits with the MMA, up from the current 10.5 percent.

The requirement will be reviewed every three months next year, with the MRR set to gradually increase to 13 percent by the end of the year, the central bank said.

The MRR is the proportion of customer deposits that banks are required to keep with the central bank. Banks can use funds above the required reserve for lending and other activities.

The MMA has also decided to increase the rate used for its open market operations by 10 basis points, or 0.10 percentage points.

The central bank previously said its OMO programme aims to reduce excess liquidity in the financial system by between MVR 2 billion and MVR 3 billion. It began conducting reverse repurchase operations under the OMO framework on 23 July last year.

As of July, an average of MVR 2.7 billion had been placed through OMO operations, according to the MMA. Short-term liquidity in the banking system has fallen from MVR 6.5 billion to MVR 3.7 billion.

MMA figures show that the government has MVR 14 billion in outstanding long-term bonds.

The central bank reduced the MRR for foreign-currency deposits from 7.5 percent to 5 percent in July last year. However, access to US dollars remains difficult, with the black-market exchange rate still above MVR 21 per dollar.

The shortage of foreign currency has put further pressure on the government's reserves. The government has used foreign-currency reserves to meet large debt obligations, including repaying USD 500 million in securities earlier this year.