As we commence the 2025–26 financial year, the Australian economic landscape presents a complex mix of challenges and opportunities. At Aura Private Credit, our focus remains on delivering consistent, risk-adjusted returns through disciplined credit underwriting and proactive portfolio management. In this update, we outline four key macroeconomic themes that will shape our investment strategy over the next 12 months.
The Reserve Bank of Australia (RBA) has initiated a shift towards a more accommodative monetary policy. After maintaining the cash rate at 4.35% for nearly 18 months, the RBA implemented two 25-basis-point cuts in February and May 2025, bringing the rate to 3.85%. A third consecutive cut is anticipated on July 8, potentially lowering the rate to 3.60%.
This easing cycle reflects a moderation in inflation, which dropped to 2.1% in May and is forecast to average 2.6% in 2025. The RBA's dovish stance aims to stimulate economic activity amid sluggish growth, with Q1 2025 GDP expanding only 0.2%.
For private credit markets, declining interest rates may compress yields on traditional fixed-income instruments, thereby enhancing the relative attractiveness of private credit offerings. However, we remain vigilant to ensure that underwriting standards are not compromised in the pursuit of yield.
Business sentiment has shown signs of improvement, with the NAB Business Confidence Index rising to 2 in May 2025, marking its highest level in four months. However, business conditions eased again to 0 index points, reflecting a steady decline since late 2024.
Capacity utilisation increased to 82.3% from 81.4%, partially reversing the decline seen in April. Despite this, sectors such as manufacturing, mining, and wholesale continue to face challenges.
For non-bank lenders, this environment underscores the importance of rigorous credit assessment and sectoral diversification. We continue to prioritise lending to businesses with resilient cash flows and strong management teams, particularly in sectors demonstrating structural growth or counter-cyclical characteristics.
Geopolitical tensions, notably in the Middle East, pose potential risks to global economic stability. KPMG estimates that escalating conflicts could reduce Australia's GDP by 0.15% to 0.20% in 2025, primarily due to higher oil prices and associated inflationary pressures.
Additionally, shifts in China's economic policy towards domestic consumption may dampen demand for Australian exports, particularly commodities. While these developments warrant close monitoring, Australia's diversified economy and proactive policy responses provide a buffer against external shocks.
Australia's economy is projected to grow by 1.8% in 2025, with a further acceleration to 2.2% in 2026. This growth trajectory is supported by factors such as population growth, income tax cuts, and cost-of-living relief measures.
However, challenges remain. The OECD has downgraded Australia's 2025 economic growth forecast, citing regulatory complexity that hinders business investment and productivity. Additionally, natural disasters and global trade tensions may further impact growth.
For the private credit sector, a gradually strengthening economy provides a conducive environment for business expansion and investment. We anticipate increased demand for alternative financing solutions, particularly from small and medium-sized enterprises seeking to capitalise on growth opportunities.
As we navigate FY2026, Aura Private Credit remains committed to delivering stable returns through prudent risk management and strategic portfolio construction. By staying attuned to macroeconomic developments and maintaining a disciplined investment approach, we aim to continue supporting Australia's non-bank lending ecosystem and contributing to the broader economic recovery.
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Aura Credit Holdings Pty Ltd (ACN 656 261 200) (ACH) operates as a Corporate Authorised Representative (CAR 1297296) of Aura Capital Pty Ltd (ACN 143 700 887 | AFSL 366230). However, where information provided by Brett Craig, Portfolio Manager of the Fund, consists of General Advice, this is provided as an Authorised Representative (AR No. 001298683) of Montgomery Investment Management Pty Ltd (ACN 139 161 701| AFSL 354564).
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