The central bank, Maldives Monetary Authority (MMA) has said USD 136.21 million has been withdrawn from the economy, from the currency injected into the system through currency printing under the previous administration. This is the first time such a withdrawal has been undertaken since 2014.
The central bank shared this information in a press release on the measures it is taking to implement monetary policy.
The former government suspended the implementation of the Fiscal Responsibility Act during the COVID-19 pandemic, leading to a depreciation of the Maldivian Rufiyaa and a sharp rise in the value of foreign currencies.
The previous government repeatedly overdrew from the public account, exceeding its available balance. According to MMA, the shortfall was financed through the printing of money, which was converted into long-term bonds on three separate occasions. This resulted in a significant increase in Rufiyaa liquidity in the economy, with a 178 percent rise in Rufiyaa circulation during the period.
To address this issue, the MMA launched an open market operation aimed at the withdrawal of excess printed currency from the economy on 23 July this year. As a result, USD 136.21 million in Maldivian Rufiyaa has been removed from circulation.
While the Maldivian Rufiyaa keeps increasing in the banking system, deposits in banks have increased by 18 percent year-on-year as of last June. Despite the increase in Rufiyaa deposits, foreign exchange deposits have continued to declined since 2022, the central bank said.
The MMA said the increased investment by banks in Treasury Bills and bonds sold by the government to banks resulted in the increase of loans issued in Rufiyaa. This led to a reduction in the amount of excess Rufiyaa within the banking system last year. However, this amount has started to rise again.
The average amount of Rufiyaa in circulation within the banking system stood at USD 453.96 million in June this year, according to MMA data. This is an increase of 2 percent year-on-year.
Although bank loans in Maldivian Rufiyaa have increased significantly, volume of foreign currency loans has declined. These factors have led to an increase in local currency and a decrease in foreign currency in the economy, leading to negative impacts on the value of Rufiyaa.
The Maldives has long been import-dependent as part of an open economy and its market prices are based on fluctuations in the prices of goods and services in the international market and the exchange rates of foreign currencies in the Maldives.