Following a recent hawkish shift in its communication, the CNB delivered the promised interest rate hike at yesterday’s meeting. The key repo rate rose by 25bp to 3.75%. This was likely due to the bank board’s concerns over the future path of inflation, especially its core component. We expect CNB interest rates to remain on hold for the rest of this year and throughout next year, as we view yesterday’s hike primarily as a precautionary measure. However, in terms of the possible next rate movement, we still regard a hike as more likely than a cut. The reason for this is the robust domestic economy, rapid wage growth and fiscal policy, which is set to be more expansionary in the coming months.

Following a recent hawkish shift in its communication, the CNB delivered the promised interest rate hike at yesterday’s meeting. The key repo rate rose by 25bp to 3.75%. This was likely due to the bank board’s concerns over the future path of inflation, especially its core component. We expect CNB interest rates to remain on hold for the rest of this year and throughout next year, as we view yesterday’s hike primarily as a precautionary measure. However, in terms of the possible next rate movement, we still regard a hike as more likely than a cut. The reason for this is the robust domestic economy, rapid wage growth and fiscal policy, which is set to be more expansionary in the coming months.

At yesterday’s meeting, the Czech National Bank raised the key repo rate by 25bp to 3.75%. This was in line with our forecast, the analyst consensus and financial market pricing. However, expectations of an interest rate hike only emerged around two weeks prior to the meeting, when some central bankers – including Governor Michl – made unexpectedly hawkish statements. Six CNB board members voted in favour of raising interest rates, while one preferred to keep them stable. The minutes of yesterday’s meeting, due to be published on Thursday 25 June, will reveal which CNB board member held a dissenting view.

The main reason for the rate hike was most likely the CNB board’s concerns about the future trajectory of inflation, particularly its core component. Headline inflation fell surprisingly sharply in May from 2.5% to 2.1% yoy, and a further decline in June – possibly even below the central bank’s 2% target – cannot be ruled out. However, this favourable trend in May and June is supported by a higher comparison base from last year. Once this effect wears off, annual price growth is likely to accelerate again in 2H26, driven by the delayed impact of the conflict in the Middle East. The central bank is currently more concerned about core inflation, which remained at 2.9% yoy in May for the third consecutive month, close to the 3% upper limit of the CNB’s tolerance band. Moreover, while headline inflation in May was in line with the CNB’s forecast, the core component was 0.1pp higher. Concern remains over the strong growth in imputed rents (5.3% yoy in May), driven by the continued rise in house prices and now compounded by the impact of significantly rising construction material costs. Core inflation could therefore increase above 3% yoy in the coming months. Our analysis of the latest inflation figures is available here: https://bit.ly/CPI_May26_EN.

We do not currently expect further CNB rate hikes, but the risks are skewed in that direction. The CNB board’s pre-meeting communication suggested that yesterday’s rate hike was a precautionary measure designed to strengthen the central bank’s position in the face of mounting inflationary risks. These risks have eased somewhat in recent days due to the fall in wholesale energy prices, including oil. However, we do not expect the CNB cutting interest rates any time soon. According to our forecast, the repo rate will remain at its current restrictive level of 3.75% until the end of next year. This is due to the robust Czech economy, which has proven resilient in the face of external shocks, has experienced rapid wage growth, and is expected to see an expansion in fiscal policy. In line with this, we continue to see a further increase in interest rates as being more likely than a cut when considering the next rate movement. At the press conference, Governor Michl provided no guidance on the future path of interest rates, noting that the central bank’s next steps would be data dependent. Nevertheless, the CNB board continues to assess the risks to achieving the 2% target tilted towards higher inflation.

Annual General Meeting

At today’s Annual General Meeting, Kofola shareholders will approve the board of directors’ proposal to pay a dividend of CZK21 per share, among other things. The meeting will take place on June 17, 2026, at 10:00 a.m.

The CZK21 dividend offers a gross yield of +4.0%. The record date is expected to be Friday, June 26, 2026. This means that Wednesday, June 24, 2026, will be the last trading day with the right to receive the dividend.

End of Partnership with PepsiCo in the Adriatic Region

Kofola announced that it will end its partnership with PepsiCo in Slovenia and Croatia on January 1, 2027. Kofola currently operates as a Pepsi bottler and distributor. We expect this change to result in a slight decline in revenue in the low single-digit percentage range. Kofola will replace Pepsi products with its own brands. Furthermore, the margin on sales of its own beverages will be significantly higher than the current margin on Pepsi products.

Kofola has already experienced a similar situation when it ended its partnership with Rauch and replaced their juices with its own brands.

Annual General Meeting

At today’s Annual General Meeting, Kofola shareholders will approve the board of directors’ proposal to pay a dividend of CZK21 per share, among other things. The meeting will take place on June 17, 2026, at 10:00 a.m.

The CZK21 dividend offers a gross yield of +4.0%. The record date is expected to be Friday, June 26, 2026. This means that Wednesday, June 24, 2026, will be the last trading day with the right to receive the dividend.

End of Partnership with PepsiCo in the Adriatic Region

Kofola announced that it will end its partnership with PepsiCo in Slovenia and Croatia on January 1, 2027. Kofola currently operates as a Pepsi bottler and distributor. We expect this change to result in a slight decline in revenue in the low single-digit percentage range. Kofola will replace Pepsi products with its own brands. Furthermore, the margin on sales of its own beverages will be significantly higher than the current margin on Pepsi products.

Kofola has already experienced a similar situation when it ended its partnership with Rauch and replaced their juices with its own brands.