(Updates with detail, quotes)
PRAGUE, March 24 (Reuters) - Serbia will be able to resume monetary easing only after it reaches financing deals with the International Monetary Fund and its creditor banks, Central Bank Governor Radovan Jelasic said on Tuesday.
Jelasic added that downward pressure on Serbia's economic growth was substantial and he saw definite downside risk to his bank's current forecast for minus two percent growth as the country lacks resources to provide financial stimulus.
"If there's an agreement with the IMF and also with commercial banks on Friday, I think it gets (us) closer to monetary easing," Jelasic said on the sidelines of a conference. "That doesn't mean definite easing but increases the room."
Serbia started talks with the IMF for a two-year loan worth around 3 billion euros last week to back its strained finances and prop up the economy.
Serbia's central bank last cut its two-week repo rate
Talks with the IMF are scheduled to last through this week, while Jelasic is expected to meet Serbia's 10 biggest creditors in Vienna to ask them to maintain their lending in 2009 and 2010.
"We have good progress in our talks with the IMF," Jelasic said. "I'm comfortable that at the end of the day... we would be able to find an agreement."
Jelasic added that it was imperative that as part of the deal, the Serbian government undertake spending cuts and not just tax rises to fill the hole in its budget.
"Revenues will underperform substantially compared to the original plans," Jelasic said.
"The majority of the work should not be done by increasing revenues, such as VAT, but the majority should be done on the expenditure side, mainly cutting public expenditure and eventually by increasing taxes which is also a non-inflation measure," Jelasic added.
Jelasic said he now saw Serbia's economy shrinking by two percent this year but asked if he sees downside risks to this forecasts, he said: "definitely".
"We see substantial downward pressure. Compared to more developed countries, we don't have the financial resources, we don't have the money in order to provide additional demand," Jelasic said. (Reporting by Balazs Koranyi; Editing by Andy Bruce)