India's CAD likely to be around 1.7% of GDP in this financial year, owing to higher oil prices: Report

New Delhi: India’s current account deficit (CAD) is expected to be around 1.7 percent of GDP in this financial year, largely owing to higher oil prices, says a report.

With the December quarter CAD worsening to 2 percent of GDP, Bank of America Merrill Lynch (BofAML) raised its CAD forecast for this financial year and for the next fiscal.

The global financial services major has raised its CAD forecast by 10 bps to 1.7 percent of GDP in 2017-18 and by 20 bps to 1.9 percent of GDP in 2018-19.

According to data released by the Reserve Bank of India (RBI) on Friday, the CAD rose to 2 percent of the GDP at $13.5 billion in the December quarter, up from $8 billion or 1.4 percent in the year-ago period, on the back of higher trade deficit.

On a cumulative basis, CAD more than doubled to 1.9 percent of GDP in the April-December 2017 period.

“Looking ahead, we see three pressures on India’s balance of payments: higher oil prices will stick the current account deficit at a relatively higher level; FPI equity flows in equities should remain tepid given high equity market valuations; and flows ?to the Chinese market will likely pick up with A shares entering the MSCI,” the report said.

The report further noted that the trade deficit has improved to $12 billion in February from $16.3 billion in January. “This should contain the March quarter CAD to $7 billion,” it added.