* Bank has cut rates by combined 350 bps since July 2009
* Room for more, cautious policy easing this year-analyst
(Adds analyst, background)
BUDAPEST, Jan 25 (Reuters) - Hungary's central bank (NBH) cut its key base rate further by 25 basis points to 6.0 percent on Monday, in line with expectations, continuing to ease policy to help the economy recover from a deep recession.
The NBH has cut its key rate by a combined 350 basis points since July 2009 as the country stabilised its finances and regained the trust of foreign investors, which has helped the forint strengthen and bond yields come down significantly.
At 6.0 percent the key base rate now matches a record low where it last stood between Sept. 2005 and June 2006.
In a Reuters poll last week 23 of 27 analysts projected a quarter percentage point reduction. Three analysts forecast a 50 basis point cut and one analyst said rates would stay on hold.
The bank slowed the pace of rate cuts to 25 basis points from 50 in December and rate setters have since indicated that a slower, more cautious pace of easing was justified because global risk appetite had become more fragile since late last year.
Analysts said there was room for further cuts this year.
"Easing will be cautious in Q1 and any potential signs of worsening market conditions could lead to a halt in the easing cycle (especially ahead of spring's parliamentary elections)," Gyorgy Barta at CIB Bank said.
"Real economic developments and the inflationary outlook still point to a need for lower rates... Of course, the main question is where rates could bottom."
The government now projects that after an expected contraction of 6.7 percent last year, the economy will shrink less than an earlier forecast for a 0.6 percent fall this year.
November retail sales data published earlier on Monday showed domestic demand remained extremely weak late last year which signals a sluggish recovery.
At the same time inflation is seen slowing below the bank's three percent medium-term target by the end of 2010.
Elsewhere in recession-hit Central Europe, neighbouring Romania's central bank is also expected to cut its rates further this year from the current level of 7.5 percent.
In Poland, which escaped recession, the central bank is seen keeping its key rate on hold at 3.5 percent on Tuesday and is expected to start hiking rates in the second half of the year.
(Reporting by Krisztina Than, editing by Ron Askew)