KUALA LUMPUR 6 Sept: Bank Negara Malaysia (BNM) is maintaining the overnight policy rate (OPR) at 3% and it expects domestic demand to continue to underpin economic growth.

It said on Thursday headline inflation was expected to remain moderate for the remainder of 2012 and into 2013.

"With some excess capacity in the economy, domestic demand is not expected to result in inflationary conditions," it said.

BNM, had during its monetary policy committee meeting on Thursday, decided to keep the OPR unchanged at 3% as there continues to be considerable uncertainties in the global economic and financial conditions.

"In this environment, the MPC considers the current stance of monetary policy to be accommodative and supportive of the economy. The MPC will continue to carefully assess these evolving conditions and their implications on the overall outlook for inflation and growth of the Malaysian economy," it said.

On the global economy, it said growth momentum has moderated. It pointed out that economic activity in most major advanced economies was slower amid greater policy uncertainty while conditions in the international financial markets continue to be volatile.

BNM said in emerging economies including in Asia, domestic demand was showing signs of moderation amid sustained weakness in external activity.

"While the Malaysian economy is affected by these global developments, domestic demand has continued to support economic growth. Looking ahead, this trend is expected to continue," it said.

BNM said that private consumption is supported by income growth and stable employment conditions.

As for investment activity, it was mainly driven by capital spending in the domestic-oriented industries, the oil and gas sector and the on-going implementation of infrastructure projects. On inflation, BNM said global energy and commodity prices were likely to be contained given the weak global conditions.

However, it cautioned that upside risks to inflation could emerge should supply disruptions result in higher global prices for commodities.