As the financial turmoil worsens, investors are betting the RBA will cut rates next week by a half a percentage point.

Amid the gloom enshrouding the global economy, investors are increasingly betting the Reserve Bank of Australia (RBA) will cut official rates next week by an aggressive half a percentage point.

"The world has just experienced the most-disturbing financial turmoil in many decades,'' said Rory Robertson, interest rate strategist at Macquarie. "Near term, it's a growing struggle to think of good reasons why the RBA won't cut to 6.5%.''

Interest rate futures for the US and euro zone showed investors were demanding a coordinated easing, he said.

"The case for large synchronised global rate cuts is stronger than ever before, and little else seems available at present to slow the 'adverse feedback loop' threatening to stall the global economy, or worse,'' Mr Robertson warned.

The RBA board's next scheduled meeting is on October 7; the cash rate currently stands at 7%.

Australian bond and bill futures surged today as the benchmark S&P/ASX 200 share index sank around 3.5% and the dollar took a beating as investors fled to the safety of the Japanese yen.

"There has to be a real chance the RBA cuts by 50 basis points next week given the extraordinary conditions markets,'' said Su Lin Ong, a senior economist at RBC Capital Markets.

She noted economic data out on Tuesday, while dated now, showed demand for credit slowed further in August while approvals to build new homes fell a steep 3.7%.

Retail sales were up by a firmer-than-expected 0.6% in August, but changes to this series limited its usefulness.

"What counts is that the outlook for the global economy is fading before our eyes,'' Ms Ong said. "And for an open, commodity-exporting country like Australia that has to be a major downside risk.''

Central banks pump cash

In an effort to prevent credit markets from drying out, the Reserve Bank today again pumped extra cash into the money market and prepared to lend more US dollars.

With major banks around the world too scared to lend to each other after the shock rejection of the US bailout plan by the House of Representatives, the RBA sought to ease some of the strain at home by adding $1.95 billion in repurchase agreements, above the estimated daily need of $1.87 billion.

The addition should further expand banks' cash cushion with the RBA, which was already at a record $10.65 billion.

The Federal Reserve had led another round of liquidity measures on Monday, more than doubling US dollar swap limits with major central banks to a staggering $US620 billion ($775 billion).

The RBA's own swap limit with the Fed was trebled to $30 billion. An RBA spokesman said it would likely hold a US dollar auction at the end of this week with a lending term around 90 days to help meet banks' cash requirements for year-end.

``Central banks will continue to work together closely and are prepared to take appropriate steps as needed to address funding pressures,'' the RBA said in a statement.

Still, the RBA has had limited luck restraining lending rates and this tightening in market conditions was one reason analysts assumed it would have to ease itself, and soon.