As expected, the Czech National Bank left interest rates unchanged at its May meeting. Governor Michl emphasised the favourable position that enables the CNB to maintain its wait-and-see policy, assessing incoming data and the risks arising from the conflict in the Middle East. In its new forecast, CNB staff increased the inflation estimate for both this year and next, while lowering the outlook for GDP growth. Furthermore, the CNB board changed its assessment of the balance of risks to achieving the inflation target from neutral to inflationary. According to Governor Michl, a rate hike was not on the agenda at the May meeting, but cannot be ruled out in the coming months. We forecast CNB rates to remain on hold this year and next, but we see the risks tilted towards a hike.

As expected, the Czech National Bank left interest rates unchanged at its May meeting. Governor Michl emphasised the favourable position that enables the CNB to maintain its wait-and-see policy, assessing incoming data and the risks arising from the conflict in the Middle East. In its new forecast, CNB staff increased the inflation estimate for both this year and next, while lowering the outlook for GDP growth. Furthermore, the CNB board changed its assessment of the balance of risks to achieving the inflation target from neutral to inflationary. According to Governor Michl, a rate hike was not on the agenda at the May meeting, but cannot be ruled out in the coming months. We forecast CNB rates to remain on hold this year and next, but we see the risks tilted towards a hike.

The Czech National Bank kept interest rates on hold at its May meeting, as expected. The key repo rate was maintained at 3.5%, the level it had reached exactly a year ago. All seven bank board members supported this decision.

In its new forecast, the CNB staff have raised inflation estimates and lowered economic growth outlook. These revisions are not surprising given the economic consequences of the conflict in the Middle East. The CNB originally expected inflation to be 1.6% this year and 2.1% next year, but now forecasts 2.2% and 2.4% respectively. Our own estimates are the same for this year but higher for next year, as we anticipate inflation rising to 2.7% in 2027. Governor Michl said that the central bank expects headline inflation to remain in the upper half of the CNB’s tolerance band for the rest of the year, with core inflation close to the 3% upper limit of this band. From a qualitative perspective, our view on headline and core inflation for the coming months is consistent with this. Regarding GDP, the central bank initially forecast growth of 2.9% for both this year and next, but has revised this down to 2.5% for 2026 and 2.7% for 2027. Our forecasts do not differ significantly, as we expect economic growth of 2.3% this year, accelerating to 2.8% in 2027. Like us, the CNB was also negatively surprised by the preliminary GDP figures for 1Q26, which showed growth slowing to just 0.2% qoq vs the CNB’s forecast of 0.5%.

The central bank is in a relatively favourable position, allowing it to continue with its wait-and-see policy and assess the risks posed by the conflict in the Middle East. This is supported by the repo rate remaining at a restrictive level (its policy-neutral rate is estimated to be around 3%), the strong Czech koruna and low initial inflation. Moreover, the recent increase in the koruna’s market interest rates, driven by concerns about high inflation, has provided an additional tightening of monetary conditions. In line with this, Governor Michl emphasised the central bank’s current position at his press conference.

Governor Michl stated that raising interest rates had not been discussed at the May meeting. However, he said that this could not be ruled out in the coming months. He added that the central bank’s next steps would depend on its assessment of upcoming data and the risks to achieving the 2% inflation target. The CNB board has changed its assessment of the balance of these risks from neutral to inflationary. Based on this, Governor Michl stated that the CNB board would decide whether to leave rates unchanged or raise them at future meetings. Although raising rates was not discussed, Governor Michl said that board members do not rule out this possibility, particularly if core inflation were to rise due to the second-round effects of higher energy prices. He also emphasised the importance of the CNB preventing higher cost pressures from feeding through into inflation expectations.

We forecast the CNB to keep interest rates unchanged until the end of next year, but we see the risks tilted towards a hike. The second-round effects of higher energy prices on other prices in the economy could represent an issue for the central bank, particularly given the already high core inflation. In March, core inflation rose to 2.9% yoy, approaching the 3% upper limit of the CNB’s tolerance band. A further increase in April cannot be ruled out. The situation is further complicated by robust domestic demand, a tight labour market, rising property and building material prices, as well as the anticipated impact of fiscal expansion. In this environment, additional inflationary pressures stemming from the conflict in the Middle East could make a CNB rate hike inevitable. Whether this risk scenario materialises will depend primarily on the duration of the conflict. The CNB staff forecast already incorporates interest rate hikes totalling 50bp, with the repo rate rising to around 4% in 2Q26 and then gradually falling back to 3.5% in 2027.

For more information about our forecasts, see the recently published Czech Economic Outlook: https://bit.ly/CEO_2Q26_EN.

For the first quarter, we estimate a 20% yoy decline in EBITDA to CZK34.4bn. Realized electricity prices will be lower this year, and we also expect operating costs to rise. However, net profit will rise by +10.5% yoy and, according to our estimates, will reach CZK14bn. Since the windfall tax is no longer in effect this year, the effective tax rate will drop significantly, positively impacting net profit.

Announcement date: Thursday, May 14, 2026, at 7:00 a.m. CET

For the first quarter, we estimate a 20% yoy decline in EBITDA to CZK34.4bn. Realized electricity prices will be lower this year, and we also expect operating costs to rise. However, net profit will rise by +10.5% yoy and, according to our estimates, will reach CZK14bn. Since the windfall tax is no longer in effect this year, the effective tax rate will drop significantly, positively impacting net profit.

The price of electricity sold has fallen significantly this year. While CEZ sold electricity for approximately EUR124/MWh last year, our estimate is that it will be around EUR105 this year. However, since the start of the conflict in the Middle East, electricity prices have been nearly EUR10/MWh higher. We do not expect this to significantly impact the average price this year. It could, however, partially increase selling prices for future years. Revenues for 1Q26 are estimated at CZK89.9bn (-3.7% yoy). EBITDA is expected to decline by 20.1% yoy, reaching CZK34.4bn. The Generation sector is expected to account for slightly more than half of this, while the Distribution is expected to account for about 36%. We estimate an increase in operating costs (personnel, services). We also expect a slight decline in depreciation and amortization. We estimate net profit for the first quarter of this year to be CZK14bn. This corresponds to yoy growth of +10.5%. The difference in this line compared to the same period last year is primarily due to the tax rate. The special tax (WFT) no longer applies this year. In Q1 of 2025, the effective tax rate was 49.7%, whereas we estimate a standard rate of 21% this year. 

2026 Guidance: On March 12, CEZ published its current targets, which project EBITDA of CZK103–108bn and net profit of CZK27–31bn. Our estimates are more optimistic. According to our model, EBITDA should be CZK112.5bn, while net profit should be CZK37.4bn. We acknowledge that projections are usually conservative at the beginning of the year. We view the release of quarterly results as an opportunity for an update. Our estimates for 1Q26 are approximately 33% and 48% of CEZ’s EBITDA and net profit targets, respectively.