De Bruyne, 33, proved the matchwinner for City in victory over Wolves last night. The midfielder will be allowed to come off contract by City at the end of the season.
Carragher, speaking on Sky Sports, insists City's decision is correct: "He's one of the highest paid players in world football, (but) he's been injured a lot in the last two years so it's hard to justify for Manchester City from a business point of view to give him a new contract.
"At a club like this you couldn't afford to have someone on those type of wages not playing every week. That should be for one of your star players.
"He's still a star player but he's not going to play every week, he's probably going to play 20-25 games a season. Man City as a business couldn't justify that."