May 26 Reuters Russia39;s central bank slashed its key interest rate to 11 on Thursday and said it saw room for more cuts this year, as inflation slows from more than 20year highs and the economy heads towards a contraction.

It announced the move, which followed two previous 300 basis point cuts which took the rate to 14, at an extraordinary meeting. The bank has been gradually reversing an emergency rate hike to 20 in late February that was triggered by Russia39;s Feb. 24 move to send tens of thousands of troops into Ukraine and the imposition of Western sanctions in response.

Governor Elvira Nabiullina said inflationary risks were easing, but warned that the economy was entering a period of structural transformation and that banks needed additional capital support.

Inflation expectations of households and businesses are falling, she told a banking conference in Moscow, helping to significantly lower inflationary risks.

The rouble39;s recent appreciation to multiyear highs has had a significant, if temporary, disinflationary impact, she said.

The Russian currency has been supported this year by capital controls imposed in late February to cap financial stability risks and defend the economy against sweeping western sanctions.

Thanks to these factors, inflation is falling faster than we expected, Nabiullina said. This allows us to lower the key rate today without creating new proinflationary risks.

We allow for the possibility of further easing of the key rate at…