ISTANBUL, Feb 19 (Reuters) - Turkey's central bank cut both its overnight borrowing and lending rates by 25 basis points on Tuesday in a bid to prevent speculative capital inflows from boosting the lira currency too sharply.

The bank also raised reserve requirements to keep loan growth in check, increasing the amount of lira and forex that lenders have to hold with the central bank.

The lira initially weakened in response to the bank's decisions.

A healthy economic outlook and the gradual move of each of its credit ratings to investment grade has boosted the appeal of Turkish assets, forcing officials to take steps to battle a flood of cheap cash from central banks in the developed world that threatens to knock its economy off balance.

The bank reduced the borrowing rate to 4.50 percent from 4.75 percent and the lending rate to 8.50 percent from 8.75 percent. But it kept its one-week repo policy rate, which it cut by 25 basis points in December, unchanged at 5.50 percent.

All 12 economists in a Reuters poll had expected the bank to keep its policy rate on hold at 5.50 percent, while five said they were expecting the bank to trim both ends of the interest rate corridor by 25 basis points.

Eleven had forecast a rise in lira required reserves.

(Reporting by Seda Sezer; Editing by Nick Tattersall and Patrick Graham) Keywords: TURKEY RATES/

(seda.sezer@thomsonreuters.com)(+90 212 350 7051)(Reuters Messaging: seda.sezer@thomsonreuters.com)

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