Speaking ahead of the England forward facing his former team Liverpool on Saturday, Pellegrini said he was pleased with his summer signing and expected him to continue getting better for both club and country.
With James Milner going the other way in the summer, from City to Liverpool, Pellegrini says Saturday's game will be special for both players.
He said: "It's always special not only for Raheem to play against a team they spent a lot of years at, for James Milner the same, that is part of the career of the player and they are now defending another shirt."
However most eyes on Saturday will focus on Sterling, facing Liverpool for the first time since leaving in the summer in a £49m deal.
He has impressed at his new club though, playing well in a City side that currently top the Premier League table. He has scored six goals so far for City including a first senior hat-trick, coming against Bournemouth.
Pellegrini says he has enjoyed watching him so far this season.
He added: "He is a very young player and he must improve a lot and it's important also he can demonstrate in every game. I'm happy with how he's playing so far, he's an important player and will be a more important player in the future.
"It depends on the way he improves, he's just 21 years old so he has years to improve and I think he will be an important player not just for Manchester City but for England."