The economy is likely to grow at about 5.6 per cent in 2014-15 and fiscal and current account deficits no longer pose a threat to macroeconomic stability, India Ratings said on Friday.
However, the rupee's value is not in line with improvements in fundamentals of the economy, the rating agency added.
"The twin deficits are no longer a threat to macroeconomic stability, as inflation is following the glide path. Also, capital inflow is in excess of the requirements to fund current account deficit.
"The economy is thus likely to achieve 5.6 per cent growth in FY 2015," India Ratings & Research (Ind-Ra) said in a release.
As per the research firm, the rupee should have been either stable or appreciated.
"However, it depreciated 3.3 per cent between January-December 2014. Yet the currency has performed better than other currencies. Currencies of most economies have depreciated more than the rupee," it added.
Reserve Bank's intervention in the currency is the other main factor affecting the value of rupee, it said, adding the fair value of rupee is estimated to range between Rs 61-62 per USD.
"In a globalised world, a lot depends on the overall strength/weakness of US dollar. Economic fundamentals of both India and the US have improved over the last one year," it said.
The rupee was trading at four-week high of 62.35 against the dollar in early trade today at the Interbank Foreign Exchange.
