Why the policy rate is not your company’s cost of capital

A rate cut can make a growth budget look more affordable before anything has changed in the company’s cash flow. The expectation of cheaper funding makes it easier to justify additional inventory, longer customer payment terms or higher customer acquisition spending. But spending decisions made on that expectation create immediate cash outflows, while the timing of the anticipated financing benefit may remain uncertain.

On 22 October, Turkey’s central bank reduced its policy rate by 100 basis points, from 37% to 36%. However, the monetary policy meeting summary published on 30 October reaffirmed that monetary conditions remain tight and that policy would be tightened again if the inflation outlook deteriorated significantly and persistently. The decision therefore does not support an assumption of uninterrupted easing.

Sellf’s view: The central question is how the policy decision translates into financing your company can actually access. A 100-basis-point policy rate cut does not automatically produce an equivalent reduction in your borrowing costs. Until the available financing terms change, the current cost remains the relevant input for growth planning.

We assess this through three connected questions:

1. What does the funding actually cost? The calculation uses borrowing terms available today, including fees and charges. An expected reduction becomes a budget input when it appears in an offer the company can actually use.
2. How long does growth tie up cash? Inventory purchases, advertising payments, sales and collections happen on different schedules. If sales increase while collection periods lengthen, the company may need more cash to finance that growth. Alongside the revenue target, we calculate when the money returns.
3. Does the plan remain profitable at the current cost? We assess the return from additional sales alongside the cost of financing those sales through to collection. If the plan depends on credit becoming cheaper later, that dependency needs to be explicit in the decision.

In Sellf’s growth engineering approach, spending, the cash conversion cycle and profitability belong in the same calculation. Better financing terms can improve the return on a plan that already works at the current cost. This keeps the growth decision grounded in conditions the business can access today.

Would your company’s growth plan still deliver the expected return if borrowing costs stayed where they are today?