IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 4, Issue 3. (May-Jun. 2014), PP 09-15 www.iosrjournals.org www.iosrjournals.org 9 | Page The Effect of Central Bank of Nigeria (Cbn) Money Supply Management on Commercial Bank Loans and Advances (Cbla) and Output 1 Anyanwu Uchenna, 2 Kalu Alexanda O.U. 1 Department of Economic Faculty of Social Sciences Imo State University Owerri 2 Department of Marketing College of Management Sciences Michael Okpara University of Agriculture Umudike Abia State Abstract: Monetary policy is one of the macroeconomic instruments with which monetary authority in a country employs in the management of money supply and the economy thereof to attain the fundamental objectives of price stability and maintenance of balance of payment. The monetary policy strives to explain the correlation between macro economic variables and the monetary variable and this form the focal point of this study. The study also set out to ascertain the impact of CBN money supply on the growth of Nigeria economy, ascertain the extent of correlation that exists between money supply and output. Scholars in the field opined that contractionary monetary policy negatively influences total consumption, CBLA and output. Within this framework, money supply, CLBA and output variables are analyzed for the period of 18 years (1994-2012) using Statistical package for social sciences (SPSS) tool. The findings shows that change in money supply (M2) has significant effect on variables such as CBLA and output in Nigerian economy within the period under review, Also there is a significant strong multiple correlation among Real GDP, Money supply and Commercial Banks’ loans and Advances (R= 95.1%). The coefficient of Determination (R2) reveals that 90.5% of variations in RGDP were explained by our selected explanatory variables (Money supply and Commercial Banks’ loans and Advances). I. Introduction Nigeria economy is characterized is a middle income, mixed economy and emerging market with expanding financial service communications, technology and entertainment sectors. It is ranked 26 th in the world in terms of GDP (nominal: 30 th in 2013 before rebasing, 40th in 2005, 52nd in 2000), and is the largest economy in Africa (based on rebased figures announced in April 2014). It is also on track to become one of the 20 largest economies in the world by 2020.Its re-emergent, through currently under performing, manufacturing sector is the third-largest on the continent, and produces a large proportion of goods and services for the West African region. It recently changed its economic analysis to account for rapidly-growing contributors to its GDP. sure as telecommunications, banking and its film industry. In regards to the above statistical revision, Nigeria has added 89% to its GDP, making it the largest African economy (http://economist.com/news/leaders/21600685-nigerias- suddenly-supersizedeconomy-indeed-wonder-so-are-its-still-huge?Frsc=dgh7ca). With a population of 158 million people, Nigeria is the largest in Africa and accounts for 47% of West Africa’s population. It is also the biggest oil exporter in Africa, with the largest natural gas reserve in the continent. With these large reserves of human and natural resources, the country is poised to build a prosperous economy, significantly reduced poverty, and provides health and education and infrastructural services to meet its population need. Oil-rich Nigeria has been hobbled by price instability, political instability, corruption, inadequate infrastructure and poor macroeconomics management (index, 2013). Monetary policy is among the macroeconomic instruments with which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose promoting economic growth and stability. The prime purpose of implementing monetary policy usually includes relatively stable price, high Real GDP and low unemployment (FRB, 2006). Also it is the actions of a Central Bank, Currency Board or other regulatory committee that determines the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through measures such as increasing or reducing the interest, or changing the amount of money banks need to keep in their vault (Bank reserves) (Investopedia, 2014). The conduct of monetary policy in Nigeria and activities of the central Bank of Nigeria relate with the core mandate of the bank and therefore are best understood from this perspective. Consequently, in pursuance of its functions in compliance with the core mandate, the CBN undertakes monetary policy in order to: Maintain Nigeria’s external reserves to safeguard the international value of the legal currency. Promotion and maintenance of monetary stability and a sound and efficient financial system in Nigeria.