Is it appropriate for a PhD student to write reference for a PhD applicant?

I am a PhD student, and was recently approached by a (very bright) student in an exercise class I teach, requesting a reference letter for his PhD application. This makes me wonder: Is it OK for a PhD student to write a reference for a PhD applicant?

There are obvious reasons why I might be able to say something informative: I saw a lot of his solutions to assigned problems, and I saw him work through an extended period of time (as opposed to say, a lecturer, who only sees his grades, and possibly final exam). However, I am concerned that I am not senior enough for my opinion to be taken seriously. Is it a legitimate concern? Would the student be better of asking someone more senior?