The manager believes the number of quality players at the Etihad will improve the England man.
The former Liverpool forward completed a big move to the Etihad this month after months of speculation about his future at Anfield and a rather acrimonious fallout with the club.
So far he is their star summer signing with the likes of Fabian Delph and Patrick Roberts having cost significantly lower fees, and Pellegrini says he will add some much needed speed to their side while they will also improve him as an individual.
"We bought Raheem Sterling and I am sure he will improve a lot,” he told mcfc.co.uk.
“In this moment he is a very, very good player but I'm sure with our squad, playing with players like David [Silva], Yaya Toure and Kun [Aguero] he will continue improving because he is young. We need his speed in our team so he will be an important player.”
Without slighting the players at Liverpool, it is fair to say that there is some truth to Pellegrini’s comments about Sterling being likely to improve with the quality of players available at City.
While the Reds squad is talented, there is more on offer on the Etihad, with the previously named Aguero and Silva on a higher level to those currently at Anfield.
The player himself arguably enjoyed his best spell while playing with Luis Suarez, another of those elite players, with him having struggled last year after the club sold the Uruguayan to Barcelona.
At City though, there is a number of big names to help him improve his game rather than just the one star man, while the increased competition for places will also play a role. For now, they will simply be hoping he proves value for money.