(Releads with governor's speech at IMF panel in Washington)
By Gordana Filipovic
BELGRADE, April 24 (Reuters) - Serbia's central bank governor said on Friday that monetary policy easing and rate cuts could neither solve liquidity problems nor rebuild confidence heavily eroded in eastern and central Europe.
Addressing a panel "Global Crisis and Europe and Central Asia" a day before the spring meeting of the International Monetary Fund and the World Bank in Washington this weekend, Radovan Jelasic also said it was vital for EU banks to maintain exposure to the entire region to help restore confidence.
In the speech made available to Reuters, Jelasic said there was nothing good to expect at the end of 2009 across the region.
"Banks will face a deteriorating loan portfolio and will spend most of their time refinancing or restructuring problematic debt, providing fresh loans to governments, cutting back operating costs and hoarding substantial amount of liquidity as a precautionary measure," he said.
"Interest rates will remain high despite the fact that central banks will lower interest rates," Jelasic said.
His office released the speech only hours after Deputy Prime Minister Mladjan Dinkic said the government had run out of fiscal policy options and it was now the central bank's turn to cut rates and mandatory reserves to keep the economy going.
The new plan, still in the works, will be discussed with the International Monetary Fund in Washington at the weekend, Dinkic told Politika daily.
Serbia's government has revised the 2009 budget, with one billion euros worth of savings and cutting the fiscal deficit by half to 3.0 percent of GDP, the key to having a 3-billion euro loan from the IMF approved by mid-May.
"The key to the future fight to ease the impact of the crisis rests on monetary policy," Dinkic told Politika in an interview, adding that monetary easing was the key to preserve jobs and resolve liquidity problems.
Earlier this week, the central bank cut its benchmark
interest rate, the 2-week repo
"My assessment is that the central bank's repo rate should be 10 percent at most in the second half of the year," he said. "It would be good for the economy that the central bank continues to lower its policy rate because we are facing a threat of economic depression."
In an interview to Ekonomist Magazin weekly to be released on Monday, Jelasic said the list of new measures agreed with the IMF, in case the one billion euro fiscal adjustment proves insufficient, included a hike in value added tax to 19 from 18 percent and higher taxes on all public sector wages. (Reporting by Gordana Filipovic; editing by Stephen Nisbet and Andy Bruce)