Central bank's interest rate cut may drive real interest rates higher

The latest interest rate cut by the People’s Bank of China may result result in more loans to sectors already suffering from excess capacity, deepening deflationary pressure and driving real interest rates higher, Bloomberg reported, citing the business and research organization Conference Board. “This is one reason why monetary policy isn’t working,” said Andrew Polk, a Conference Board economist. “You’ve got huge overcapacity, you’ve got zombie companies, and the good companies aren’t taking advantage of monetary loosening because they are worried about repairing their balances sheets, paying down debt and not expanding production.”