(Recasts with rate decision, central bank's comments)
By Anthony Esposito
SANTIAGO, Sept 11 (Reuters) - Chile's central bank cut its benchmark interest rate for the seventh time since October on Thursday, as forecast, continuing with its easing cycle to bolster a quickly decelerating economy.
The bank reduced the key rate 25 basis points to 3.25 percent and left the door open to possible future rate cuts, but slightly moderated its tone compared with prior post-meeting statements.
"The board will consider the convenience of introducing further monetary stimulus in line with the evolution of domestic and external macroeconomic conditions and its implications on the inflationary outlook," the central bank said.
Its bias had previously said it would "consider the possibility of making additional cuts to the monetary policy rate."
Even though inflation remained above the central bank's 2 to 4 percent target range for the fifth month in a row in August, the rise in consumer prices is seen as a temporary phenomenon linked mostly to the Chilean peso's recent depreciation.
"The most likely scenario continues to assume that inflation will stay above the upper bound of the tolerance range still for some months, to later return to the target. This evolution will continue to be monitored with special attention," the central bank said.
Faced with the reality of a much sharper slowdown than had been anticipated, the bank slashed its 2014 economic growth expectations earlier this month to as little as 1.75 percent, with domestic demand growth seen sliding almost to a halt.
Economic growth in the world's top copper producer expanded in July at its slowest pace in more than four years, though it exceeded market forecasts.
"Output, demand and employment indicators continue to reflect the low dynamism of the Chilean economy. Even so, the unemployment rate remains low and the annual growth rate of nominal wages has risen further," said the bank in its Thursday release.
According to the bank, the fruits of the easing cycle are being felt in the economy through domestic credit conditions that "continue to be favorable in general."
Earlier this week, the majority of analysts and traders in two central bank polls had forecast a 25 basis points cut. (Reporting by Anthony Esposito; Editing by Diane Craft)