As expected, the Czech National Bank cut interest rates by 25bp today, with the key repo rate falling to 3.5%. Six of the seven board members voted in favour. Favourable inflation developments and risks to the economy from US tariffs contributed to the decision. However, the central bank is optimistic in its new forecast, predicting GDP growth of around 2% both this year and next. The bank board continues to highlight inflationary risks. Nevertheless, the CNB staff forecast points to the repo rate declining to 3% as early as 2Q25. Given the board’s hawkish communication, we expect more gradual 25bp cuts at both the August and November meetings, bringing the repo rate to a terminal level of 3%.

As expected, the Czech National Bank cut interest rates by 25bp today, with the key repo rate falling to 3.5%. Six of the seven board members voted in favour. Favourable inflation developments and risks to the economy from US tariffs contributed to the decision. However, the central bank is optimistic in its new forecast, predicting GDP growth of around 2% both this year and next. The bank board continues to highlight inflationary risks. Nevertheless, the CNB staff forecast points to the repo rate declining to 3% as early as 2Q25. Given the board’s hawkish communication, we expect more gradual 25bp cuts at both the August and November meetings, bringing the repo rate to a terminal level of 3%.

At its meeting today, the Czech National Bank cut interest rates by 25bp. The key repo rate fell to 3.5%, in line with our forecast, consensus and market pricing. Six members of the bank board voted for the 25bp cut, while the remaining member voted to leave rates unchanged. The CNB thus resumed cutting rates after a pause in March. The move was supported by favourable developments in inflation, which fell to 1.8% yoy in April compared with 2.0% yoy in the central bank’s newly published forecast. However, the negative risks to the economy from US tariffs are also likely to have influenced the decision. Despite today’s rate cut, we think that monetary policy will remain slightly restrictive, as we see 3% as the neutral repo rate level. However, the central bank will now be better prepared to react to any deterioration in economic conditions in the coming months with further rate cuts. According to Governor Michl, the fact that monetary policy remains restrictive was one of the reasons for today’s cut. Another reason was the reduced risk of imported inflation, he said. Governor Michl also mentioned that the members of the board did not agree that today’s rate cut would be the last in this cycle, as some of their comments before the meeting had suggested. However, he added that there was consensus that there is limited scope for further cuts.

Although the central bank is very optimistic about Czech economic growth, the CNB board still sees the risks as slightly skewed towards higher inflation. Compared to its previous February forecast, the CNB left its estimate for this year’s economic growth at 2.0% and only slightly lowered its estimate for next year from 2.4% to 2.1%. For 1Q25, the central bank expected GDP growth of 0.6% qoq, only slightly above the CZSO’s advance estimate of 0.5% qoq. For the rest of the year, the central bank expects the economy to continue to grow qoq, forecasting GDP growth of 0.4% qoq in 2Q25 and 0.3% in both 3Q25 and 4Q25. It seems clear, therefore, that the CNB forecast does not assume any significant impact from US tariffs. The CNB’s inflation forecast was also little changed. The central bank raised its inflation estimate for 2025 from 2.4% to 2.5% and for 2026 from 2.1% to 2.2%, although the external assumptions of the forecast include much weaker price pressures from abroad. This should be in line with Governor Michl’s comment on the reduced risk of imported inflation. Compared to the CNB, our GDP growth forecast is more pessimistic, and we also expect lower inflation. In contrast, the CNB staff forecast foresees a faster decline in interest rates, with the repo rate reaching a neutral 3% already in 2Q25. The more accommodative monetary conditions in the CNB’s forecast compared with ours, supported by a weaker koruna, may partly explain the differences in the GDP and inflation estimates. We presented our forecasts in detail in our recently published Czech Economic Outlook: https://bit.ly/CEO_2Q25_EN.

We expect the repo rate to fall to 3% by the end of the year, with 25bp of cuts per quarter. Specifically, we expect a cut at the August and November meetings, when the CNB board will have new forecasts and therefore fully assess the new data. According to Governor Michl, the upcoming data will play a key role in the central bank’s decision-making. The board’s cautious stance continues to point to only gradual rate cuts. The board members remain concerned about domestic inflationary risks (including high growth in services and house prices, as well as wages and the impact of fiscal policy), which Governor Michl confirmed at today’s press conference. The current high level of global uncertainty is also likely to support the board’s cautious approach. On the other hand, we expect the economy to slow from 2Q25 due to the negative impact of US tariffs, and we forecast a mild recession in 2H25. Although inflation is likely to remain volatile in 1H25, we expect it to settle around the 2% target in 2H25. All in all, we believe that favourable inflation developments and a negative economic trend should justify further gradual rate cuts over the rest of the year.

CEZ's 1Q25 results will also include the acquired GasNet, which was not consolidated in the same period of the previous year. We expect CEZ to post EBITDA of CZK38.3bn (-4.9% yoy) and net profit of CZK8.3bn (-38% yoy). We expect CEZ management to reiterate its full-year guidance.

Announcement date: Thursday, May 15, 2025 at 7:00 a.m. CET

CEZ's 1Q25 results will also include the acquired GasNet, which was not consolidated in the same period of the previous year. We expect CEZ to post EBITDA of CZK38.3bn (-4.9% yoy) and net profit of CZK8.3bn (-38% yoy). We expect CEZ management to reiterate its full-year guidance.

Total revenues for 1Q25 should reach CZK92.7bn (+6.0% yoy). We expect 1Q25 EBITDA to decline to CZK38.3bn (-4.9% yoy). According to our forecast, CEZ produced slightly more electricity in 1Q25 yoy. However, the average realized electricity price will decline from EUR135/MWh, which CEZ sold for in 2024, to around EUR125/MWh. Production from coal-fired and gas-fired power plant is expected to decline. However, this should be offset by an increase in production from nuclear units (Production segment). The Distribution segment will increase significantly due to the contribution of GasNet. CEZ completed its acquisition at the end of August last year, so it was not part of the company in 1Q24. We expect the Sales segment to be slightly higher than in 1Q24. Mining will decline in line with the expected decline in coal-fired power plant production, as CEZ burns coal from its own mines (Severoceske doly) in its power plants. We expect an increase in material, personnel and service costs. Depreciation and amortization will also increase significantly. This is partly due to the aforementioned GasNet and partly due to accelerated depreciation of coal assets. 2025 should be the last year in which a special windfall tax (WFT) is payable. We estimate the effective tax rate for 1Q25 at 62% (WFT 60% plus standard corporate tax 21%). Net profit should then reach CZK8.3bn (-38% yoy).

Dividend for 2024: We expect that CEZ's Board of Directors could announce a dividend proposal in its report for 1Q25. Based on CEZ's current dividend policy of paying out 60-80% of adjusted net profit, the dividend should amount to CZK47 per share if we consider the upper end of the range. This represents a gross yield of +3.9%.

2025 guidance: We expect CEZ to confirm its full-year targets. EBITDA should reach CZK125-130bn and net profit CZK25-29bn. Our estimates for 1Q25 are 30% of EBITDA and 31% of net profit compared to the full-year guidance. However, we do not expect CEZ to update its targets. This could happen later in the year.