With the rupee recently gaining over other currencies, as also holding its own against the US Dollar following the latest rate cut by the US Fed, a senior consultant said on Thursday that the Indian currency had climbed to optimal levels, while a further rise would affect the country's export competitiveness and hurt the economy.
"To by mind, it (rupee) has really gone as high as I believe it should go," Chief Executive Mecklai Financial Services Jamal Mecklai told BTVi in an interview.
"I think the real problem we face with the stronger rupee as strong as this will be a competition from China. The sentiment is positive since the state government elections and that's what pushed it higher," he said.
After the US Fed on Wednesday raised its key interest rate by 25 basis points, the rupee is ruling firm at 65.40 against the US dollar on Thursday, making it one of the strongest performing currencies in the world. It has strengthened from the 67.25 levels a year ago.
"I think the RBI (Reserve Bank of India) is obviously concerned about it, while the good news is they seem to not worried too much about volatility and let it rise as much as it did.
"But my sense is they also recognise the level of the rupee is going to create problems in the real economy," Mecklai added.
Mecklai elaborated on the problem of how to make "the rupee turn" in this context.
"If you really want it to be little bit weaker, let us say 68...69, which would be the level that I think would be pretty good for export competitiveness and to maintain just general domestic competitiveness. "How do you get there? I don't have the answer," he said.
"But I think markets have a life of their own. Way back when Mr.Modi first got elected, the rupee strengthened and then over time it slowly started weakening partly under RBI's dollar buy and partly under market movements," he said.
"The rupee cannot stay at this level. I mean the economy cannot be able to sustain it. So if it cannot it will come down. What will be the trigger I don't know whether it will be tomorrow or after two weeks or two months I don't know."
In this connection, commenting on Wednesday's US Fed rate hike, State Bank of India's Chief Economic Adviser Soumya Kanti Ghosh said its impact on India "will be muted partly because the results of UP elections have altered the view of country risk for India beyond 2019".
"Though the currency can appreciate in the short term, rupee is expected to settle at Rs 66.5-67.5 per dollar at the end of 2017. However, this view is subjected to position taken by other central banks in response to the US Fed rate hike," Ghosh said in a report.