Sept. 28 (Bloomberg) -- Colombia’s peso, the best- performing emerging-market currency this quarter, may extend gains after policy makers unexpectedly cut interest rates to a record, former central bank co-director Juan Mario Laserna said.

Central bankers on Sept. 25 unanimously voted to reduce the overnight lending rate a half-percentage point to 4 percent, in a bid to stimulate growth as the country undergoes its first recession in a decade. The move, which surprised all 27 economists surveyed by Bloomberg, came a day after the government announced the economy shrank for a third straight quarter, contracting 0.5 percent in the April-June period.

“People may see it as a move that generates more growth and if that’s the perception, that means an appreciation” of the peso, Laserna, who left his post at the central bank in March, said in a Sept. 25 interview at the sidelines of an Interbolsa conference in Medellin.

The peso has surged 11.7 percent against the dollar since June 30, the biggest gain among the 26 emerging-market currencies tracked by Bloomberg, as a jump in oil, the country’s top export, and rising demand for higher-yielding assets lured international investment to Latin America’s fifth-largest economy.

The currency rose 0.3 percent to 1,918.65 per U.S. dollar today, from 1,924.45 on Sept. 25.

Central bankers said July 24 they were “aware of the risks associated with the peso’s appreciation” after it strengthened more than they expected. Still, Laserna doesn’t believe the central bank will buy dollars directly in the foreign-exchange market to stem gains in the local currency.

‘Doubt They’ll Intervene’

“I doubt they’ll intervene,” said Laserna, who is planning to run for a seat in the Senate at the March 2010 congressional elections. “The past experiences weren’t good. There’s a lot of discrepancies if intervention in the past was effective and if buying dollars helps strengthen” the peso.

The seven-member board led by central bank chief Jose Dario Uribe said in a statement that they “expect stability in the interest rate in the near future.”

At 4 percent, the rate is at its lowest level since 1998 when the bank began targeting inflation principally through its overnight lending rate. The bank has cut 5.5 percentage points since December.

Economic Contraction

The economy’s contraction and low inflation would have allowed policy makers last week to lower rates by as much as 1 percentage point, according to Laserna. He forecasts Banco de la Republica will maintain its key rate unchanged through May 2010 when presidential elections take place.

Colombia’s annual inflation slowed to 3.1 percent last month, its lowest level since 1962. That puts it in line to end the year below the central bank’s 2009 target of 4.5 percent to 5.5 percent and within its so-called long-term target between 2 percent and 4 percent.

“There was room for a bigger cut, but they are being conservative and I think they’ve done well,” said Laserna. “The faster you lower (rates), the faster you have to start raising them again and you don’t want to do that at the beginning of next year in the midst of an election. Strategically, it’s best to stay put.”