No.
First, let me define ‘deflation’ the way that I think is compatible with how Esuric is using it to avoid misunderstandings. deflation - any cash-induced changes in the purchasing power of money in the upward direction.
Now, can such ‘deflation’ cause market interest rates to rise above the natural rate of interest?
If ‘natural rate’ is used in its literate sense, that is, some equilibrium point of the discount rate representing time preference, then Yes, but so what?
The question mises the point. The ongoing interest rate is always above or below some mental construct of a ‘natural rate of interest’. The question is not interesting, and Esuric’s insight (which is simply a reiteration of the MET insight) is also not too revealing, unless one wishes to emphasize the point about the market as a process.
What is interesting is whether the discrepancy (below or above the natural rate) is due to indigenous forces or exogenous forces. The latter exerting their influence by force against that which would have occurred absent this force, i.e., interference in the free market rate of interest. In other words, what is the causal element behind the deflation? Monetary contraction that results from a reverse inflationary policy? This would also include fractional reserve bank credit rewinding back to its base reserves following a bust. Or is it the result of an increase in voluntary demand for money?
MET fails to distinguish between the causal elements and reach the amazing conclusion that any disequilibrium is tantamount to distortion. This means that fluctuations in demand for coffee are also distortions, just as government price fixing is, because when you plot the supply and demand curves of both - demand for coffee in transition, and for the affect of a price control - both reveal the same shaded areas of disequilibrium.