The CNB’s interest rates remained unchanged after yesterday’s meeting, as expected. There were no surprises in Governor Michl’s press conference either, as he continued to emphasise inflationary risks. However, he said that the central bank’s next steps could go either way and would be data dependent. In its new forecast, the CNB expects slightly lower inflation and economic growth this year and next, but slightly higher interest rates. Due to the assumption of a more expansionary fiscal policy, we expect the CNB to keep rates stable for an extended period. Nevertheless, we still see a greater likelihood for rates to be cut rather than hiked in its next move, provided that the more expansionary fiscal policy does not materialise and the disinflationary trend in the economy persists.

The CNB’s interest rates remained unchanged after yesterday’s meeting, as expected. There were no surprises in Governor Michl’s press conference either, as he continued to emphasise inflationary risks. However, he said that the central bank’s next steps could go either way and would be data dependent. In its new forecast, the CNB expects slightly lower inflation and economic growth this year and next, but slightly higher interest rates. Due to the assumption of a more expansionary fiscal policy, we expect the CNB to keep rates stable for an extended period. Nevertheless, we still see a greater likelihood for rates to be cut rather than hiked in its next move, provided that the more expansionary fiscal policy does not materialise and the disinflationary trend in the economy persists.

In line with expectations, the Czech National Bank left interest rates on hold again at yesterday’s meeting. The key repo rate therefore remains at 3.5%, where it has been since the last cut in May. This decision was backed by all seven members of the CNB board.

Governor Michl’s press conference revealed nothing new. He continued to emphasise inflationary risks, particularly those stemming from the domestic economy. In this context, he again mentioned the rapid growth in services and house prices, as well as wages. Although Governor Michl did not speak out as vocally against more expansionary fiscal policy as he had done at previous press conferences, this risk continued to feature prominently in the CNB board’s written statement. Regarding this, Governor Michl said that the central bank would first analyse the measures suggested by the likely future government and then estimate their impact on economic growth and inflation. Consequently, the newly published CNB forecast does not include possible changes in fiscal policy.

The CNB’s new forecast includes lower inflation, which nevertheless remains above 2%. The central bank expects consumer prices to grow by an average of 2.5% in 2025 and slow down to 2.2% in 2026 – 0.1pp less for both years vs its August forecast. Our estimate for 2025 is only slightly lower at 2.4%. However, our forecast for 2026 is significantly lower at 1.5%, as it already reflects the government’s planned measure to transfer payments for renewable energy sources from households to the state. The CNB has also reduced its GDP growth estimate to 2.3% for 2025 and 2.4% for 2026, whereas it had originally expected 2.6% for both years. This still is a more optimistic outlook than our own forecast, at 2.1% and 1.6%, respectively. For 3Q25, the central bank estimated an increase in GDP of 0.2% qoq, so it was surprised by the 0.7% growth resulting from the CZSO’s advance estimate, as were we.

In light of the anticipated more expansionary fiscal policy, we have removed the prospect of further cuts to the CNB’s interest rates from our forecast. We expect the repo rate to remain at 3.5% for an extended period. This is because we anticipate that the fiscal expansion will alter the trend in economic and inflation developments over the monetary policy horizon, i.e. at the turn of 2026 and 2027. While the economy would grow faster, we predict that higher government spending would cause inflation to rise above the CNB’s target again after falling below 2% in 2026 due to cheaper energy. The interest rate trajectory in the CNB’s new forecast roughly corresponds to ours but is slightly higher than in its previous forecast, despite downward revisions to inflation and GDP estimates. However, the CNB expects a significantly weaker koruna than we do, so its forecast includes easier overall monetary conditions.

However, we still consider a cut to be more likely than a hike for the next move in CNB rates. When a new government is established and the state budget for 2026 is approved, likely at the turn of the year, it should become clear whether a more expansionary fiscal policy is materialising. If this does not happen, it is possible that the disinflationary trend in the economy will persist next year. In this case, the central bank would have to lower interest rates further. At the press conference, Governor Michl said that the CNB board remains open to adjusting interest rates either way, depending on newly released data.

For more information about our forecasts, see the recently published Czech Economic Outlook: https://bit.ly/CEO_4Q25_EN.

CEZ reported a 56% yoy increase in net profit to CZK5.5bn for 3Q25. This exceeded the market consensus by +10%. However, this was influenced by a significant decrease in the effective tax rate, which fell from 88.0% in 3Q24 to 56.4% in 3Q25. EBITDA of CZK29.3bn (-5.7% yoy) fell short of estimates by 7%. This was due to lower electricity realization prices, lower trading profits, and poorer performance of emission sources and hydroelectric power plants. While CEZ repeated its full-year EBITDA guidance, it simultaneously lowered the upper limit of its original net profit expectation to CZK26-28bn from CZK26-30bn.

CEZ reported a 56% yoy increase in net profit to CZK5.5bn for 3Q25. This exceeded the market consensus by +10%. However, this was influenced by a significant decrease in the effective tax rate, which fell from 88.0% in 3Q24 to 56.4% in 3Q25. EBITDA of CZK29.3bn (-5.7% yoy) fell short of estimates by 7%. This was due to lower electricity realization prices, lower trading profits, and poorer performance of emission sources and hydroelectric power plants. While CEZ repeated its full-year EBITDA guidance, it simultaneously lowered the upper limit of its original net profit expectation to CZK26-28bn from CZK26-30bn.

Total revenues for 3Q25 amounted to CZK72.9bn, which is an 11.6% yoy decrease. EBITDA reached CZK29.3bn in 3Q25, marking a 5.7% yoy decline. The Generation segment declined by 19% yoy due to lower electricity sales prices (EUR124/MWh compared to EUR135/MWh), decreased production from emission sources, and poorer performance of hydro and gas power plants. These declines were partially offset by higher production (+3.4% yoy) from nuclear power plants. Compared to last year, there were no profits from trading (last year CZK0.8bn). Additionally, CEZ lowered its expectations for coal-fired power plant production for the entire year. The Distribution segment grew by +46% yoy, mainly due to the consolidation of GasNet, which joined the group on September 1, 2024. The Sales segment grew by +15% yoy, mainly due to the significant increase in performance of ESCO companies (+148% yoy), which compensated for a one-time item (CZK1.3bn in 3Q24) that did not recur this year. Mining fell by 28% yoy, as did generation. The EBITDA margin increased by 2.5pps to 40.2%. Net profit, adjusted for extraordinary items in 3Q25, increased significantly by 56% to CZK5.5bn. The difference compared to 3Q24 is the effective tax rate. This year, it reached 56.4%, whereas in 3Q24, it was 88%. Additionally, CEZ recorded a loss from Rolls-Royce SMR of CZK0.4bn. This item is likely to recur in subsequent periods.

Leverage (net debt to EBITDA) increased slightly to 1.5x following dividend payments. This is an increase from 1.3x in the first half of 2025 and 1.5x at the end of 2024.

2025 Guidance: CEZ reiterated its EBITDA profit projection, which should range between CZK132-137bn this year. CEZ management narrowed, in this case lowered, the upper limit of the expected range to net profit, which should reach CZK26-28bn. The previous estimate was CZK26-30bn. The updated projection would correspond to a dividend payout of almost CZK42 or a gross yield of +3.2% at an 80% payout ratio. For 9M25, the reported figures are 77% of the full-year EBITDA target and 82% of net profit. At the same time, CEZ raised its estimates for the windfall tax to CZK31-34bn (originally CZK29-33bn).