Tax season coinciding with large government debt payments; it is expected that the central bank will continue to protect and oversee the situation, overall pressure is manageable.

This week will usher in the tax period as the beginning of the quarter, with July usually being a big month for tax payments. Referring to the data from the same period between 2021 and 2025, the scale of tax payments in July generally ranges from 1.7 to 1.9 trillion yuan, with the actual impact on the liquidity not being significant. In addition, the net payment scale of government bonds has increased to 568.7 billion yuan. With the large outflow of taxes and the significant payment of government bonds overlapping, liquidity is expected to face a funding gap of over 2.2 trillion yuan. Industry insiders point out that if the funding pressure increases this week, the central bank may also increase its reverse repurchase agreements to protect the market. In the meantime, coinciding with the expiration window of 900 billion yuan of 6-month buy-back reverse repurchase agreements, the central bank is expected to appropriately increase net injections. Furthermore, overnight reverse repurchase agreements may also be reintroduced during the tax period to smooth out temporary fluctuations in liquidity. This tool had already been used during the previous quarter change to smooth out the peak of interest rates around the quarter change.