* 25 bps rate cuts "a very tangible alternative" -Csaki
* Easing cycle could pause in March ahead of elections
* 5.5 pct mkt rate view at end-2010 "absolutely realistic"
By Gergely Szakacs
BUDAPEST, Jan 8 (Reuters) - Hungary's central bank remains firmly in easing mode but the pace of rate cuts is likely to be slower and the bank may even take a pause in its easing cycle ahead of an election due in April, a rate-setter told Reuters. The bank reduced its main lending rate by a combined 300 basis points in five steps before opting for a 25 basis point cut -- the smallest in the current cycle -- at its last meeting in December, bringing rates to 6.25 percent.
It said the country's vulnerability to its high debt and fragility in global markets warranted caution despite a steep economic downturn, which is expected to cut inflation below the bank's 3 percent target by the second half of 2010.
The bank will next discuss policy on Jan. 25 and monetary council member Csaba Csaki -- who was not present at the last meeting but supported the decision -- said on Friday interest rates could fall still further, albeit at a slower pace.
"I think this (25 bps steps) is a very tangible alternative. I would not rule out bigger steps, but I think this decision (in December) showed that the council had changed gears, at least at that meeting," Csaki said.
"I do not think that the easing cycle will come to a halt, but my projection is that we will proceed with smaller steps unless there are so many positive changes in the world that would warrant considering even lower (interest rate) levels."
Hungary became the first European Union member to seek international aid during the financial crisis and although the country had weaned itself off a $25.1 billion IMF/EU lifeline, it remains vulnerable to abrupt shifts in global sentiment.
While another quarter point reduction would bring Hungary's base rate to the record low of 6 percent last seen in September 2005, that would be still far above regional peers Czech Republic and Poland where rates stand at 1 and 3.5 percent, respectively.
Markets expect Hungary's base rate to fall to a new record low of 5.5 percent by the end of the year -- or 75 basis points below the current level -- which Csaki said was an "absolutely realistic" expectation.
But he said with rates nearing 6 percent, the bank must be more cautious in future decisions, especially given question marks over the economic policies of the next government to be formed after elections due in April.
PAUSE MAY COME IN MARCH
Csaki said with elections approaching, the bank could also grow wary of exposing itself to attacks over its policies and may even take a pause in its monetary easing cycle.
"I think in March we should not touch interest rates because immediately before an election any decision can be interpreted as political," he said.
The opposition Fidesz party, which looks well-positioned to score a landslide victory at April's elections, has repeatedly criticised the central bank for doing "too little, too late" on monetary easing, aggravating the economic malaise.
"I think immediately before the elections the council will obviously weigh the possible interpretations of any decision and my belief is that we will decide more cautiously." (Reporting by Gergely Szakacs; editing by Stephen Nisbet)