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Moody's views Caixa's lower rates for residential mortgages as credit positive

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Moody's views Caixa's lower rates for residential mortgages as credit positive

Caixa Econômica Federal's announced rate cuts on residential mortgages mainly marketed to low- and middle-income borrowers is credit positive for the bank, according to Moody's.

The lower rates will allow Caixa to have larger loan origination volume in its core product amid an expected rise in competition, the rating agency said in an Oct. 10 report.

The Brazilian mortgage lender will offer rates between 7.5% and 9.5%, down from its previous rates of between 8.5% and 9.75%. The move comes after the central bank's 50-basis-point reduction in the benchmark interest rate to a historic low of 5.5% amid subdued inflation.

The measure puts Caixa ahead of its competitors, especially in a low-interest-rate environment that should support a recovery in credit demand despite lower-than-expected economic growth, Moody's said.

The rating agency also views the rate cuts as in line with the bank's current objective of supporting profitability with larger business volume and meeting a robust capital replenishment framework through increased earnings generation.

The measure supports Caixa's goal to maintain its dominant position in the mortgage lending market and streamline its operation to its core business as mandated by the government. Furthermore, lower interest rates will boost a still-underdeveloped housing segment in Brazil, Moody's said.