India's current account deficit is expected to be around 1.7% of GDP in this financial year, largely owing to higher oil prices, says a report.

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With the December quarter's current account deficit worsening to 2% of GDP, Bank of America Merrill Lynch raised its current account deficit (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% of GDP in 2017-18 and by 20 bps to 1.9% of GDP in 2018-19.

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

On a cumulative basis, CAD more than doubled to 1.9% 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 Reserve Bank 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.

First Published:Mar 19, 2018 11:11 AM IST