Shadow rate

Shadow rate is the interest rate that a central bank charges on money that commercial banks are required to keep on reserve at the central bank. The central bank sets this rate, and commercial banks must pay this amount, even if they don't earn any interest on the money they have set aside in reserve. This system helps the central bank to control the money supply and manage inflation, because the money banks set aside in reserve is money that is not being lent out and circulated, which keeps prices from rising too quickly.