By Tommy Stubbington Of DOW JONES NEWSWIRES LONDON (Dow Jones)--The cost of borrowing euros in the interbank market Friday fell to its lowest level since April 2011, and market participants expect further declines as liquidity in the banking system remains plentiful. The amount of surplus cash in the banking system has risen after banks borrowed EUR489.19 billion at the European Central Bank's three-year liquidity operation in December, the longest-ever term offered by the ECB. A second such facility is scheduled to be conducted in February. "The excess liquidity is going to remain a feature of the market for quite some time. We had a big take up of the three-year facility in December," said Philip Tyson, futures and options strategist at ICAP. The downward march of interbank rates, coupled with some better than expected recent economic data, should help ease the pressure on the ECB to cut rates further or embark on a major program of bond purchases, Tyson added. The ECB will meet next week to decide on interest rates. The three-month euro Interbank Offered Rate, also known as Euribor--the rate at which interbank term deposits within the monetary union are offered--was fixed Friday at 1.288%, down from 1.303% Thursday. The spread between the three-month Euribor and the three-month euro overnight index average rate narrowed to 93.4 basis points from 94.0 basis points Thursday. Euribor is tracked more widely than the London Interbank Offered Rate and is used to benchmark a wider range of assets. The market is pricing in further declines in Euribor, with the March Euribor futures contract currently trading at 98.975, implying a fixing of 1.025% when the contract matures. -By Tommy Stubbington, Dow Jones Newswires; + 44 (0)207 842 9268, tommy.stubbington@dowjones.com

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