(Reuters) – The Russian central bank cut its key interest rate by 17% Friday. It stated that future reductions are possible as it believes emergency measures have contained financial instability, returned deposits to banks, and reduced the danger of inflation.

The central bank maintained its key interest rates at 20% last month after a huge emergency increase in February. It also announced that it will begin buying OFZ bonds. This was in response to an impending spike in inflation and imminent economic contraction.

Russia sent its troops into Ukraine to conduct a special military operation on February 24, which it described as a demilitarization of and denazification of the neighbor. It also provoked widespread Western sanctions.

The central bank cut unexpectedly the key rate by 300 basis point on Friday. This decision was made before its regular meeting, which is scheduled for April 29.

According to the company, the change represented a shift in the balance between the risks of increased consumer price growth and a decrease in economic activity. It also contained the risk of financial instability.

Financial stability risks remain, however, they have stopped increasing for the moment, owing in part to the capital control measures. According to its statement, there has been a steady flow of money into fixed-term deposits.

The annual inflation rate in Russia rose to 16.70% on April 1st, compared with 15.66% one week prior. This was due to the volatility of the rouble which sent prices skyrocketing amid Western sanctions that severely restricted Russia’s access and trade.

The Russian economy’s external conditions remained difficult and “considerably restricting” economic activity, the central bank stated. However, it said that the bank “holds open further key rate cuts at its forthcoming meetings”.

While the central bank said that inflation would rise because of the base effect, latest data for the week showed a decrease in price growth rates, due also to the increase in the rouble.

The statement stated that “the tightening of the monetary conditions is partially offset by lending support programmes launched jointly by Russia’s government and Bank of Russia but will still limit inflationary risks.”

Russian analysts welcomed the prior-of-schedule rate cut. Some expected it to begin only in June. It showed confidence in the central bank’s emergency actions since Feb. 24, according to Russian analysts.

Dmitry Polevoy (head of investment, Moscow-based brokerage Locko-Invest) stated, “The rate will likely to be reduced by another 100-200bps per month in April. But it will require additional positive dynamic on inflation and inflationary expects.”

Polevoy’s year-end key rates forecast for 2012 has been raised to 11-12% from the earlier anticipated “no higher that 15%”