Maldives Monetary Authority (MMA) has stated that overdrawing PBA and printing money or monetizing to finance the state’s annual budget will result in further pressure on USD exchange rates leading to rate surge.
Member of Parliament for the Maafannu Medhu constituency asked MMA about the reasons why the authority has been unable to maintain the US Dollar rates within the ± 20% band (between MVR 10.28 Rufiyaa and MVR 15.42), despite the main objective of the monetary policy being the achievement price stability
When the parliament demanded an answer for the question, MMA responded that under the current monetary policy framework, the exchange rate peg with the US dollar is used as the intermediate target to achieve price stability.
They highlighted their unwavering efforts to maintain the rates within the permitted fluctuation bands. Accordingly, MMA said that they had been managing to regulate the domestically circulated local currency within the banking system through MMA’s Overnight Deposit Facility (ODF).
MMA noted that the authority has been ready to mop-up excess money within the banking systems through MMA’s Open Market Operations whenever made necessary due to inflationary pressure. Additionally, MMA stated that providing required foreign currencies to banks and SOE’s through MMA’s Foreign Exchange Invention policies has released some pressure on the exchange rate.
However, MMA said that overdrawing PBA and printing money or monetizing to finance the state’s annual budget has risked the liquidity position of the banking system and has resulted in additional pressure on USD exchange rates.
The state has monetised twice previously to settle government finances. Moreover, the parliament gave permission to print more money and provided a period of 50 years to repay the overdrawn money, last November.
Therefore MMA said that when the state’s monetisation request for this year had come, the authority had highlighted the pressure on the exchange rates as a consequence of approval to monetization and extension of monetization period. MMA also stated that they had advised the government of the restriction to increase national reserve due to issuing USD from the national available reserve to repay government-guaranteed international loans on behalf of SOEs.