The former Tottenham defender will end two seasons with Bayern and join Monaco at the end of June when his contract expires.
Babbel was impressed by Dier this season, declaring the England international the best defender available to Bayern coach Vincent Kompany.
He told Tribalfootball.com: "For him, it is the right move because he will play regular football, but I don’t know what has happened and why he isn’t playing so often for Bayern Munich.
"For myself, he was the best defender that we had, Dayot Upamecano has made too many mistakes, Kim too many mistakes, and the only top man who never played a bad game if you need him and gave a top performance was Eric Dier.
"I don’t know what Vincent Kompany is thinking but he sees them every day in training, but for me it is difficult to say you have to play with these two guys.
"I can only analyse when I watch a game and, in these games, I thought Eric Dier was the best defender Bayern Munich had since last season."
Tel never played in best position at Bayern
Meanwhile, Babbel also considered Mathys Tel's situation at Tottenham. The young France attacker is on-loan at Spurs from Bayern, with a permanent transfer said to be a potential option.
Babbel also stated: "He’s never played in his best position as he always has to play on the left or right wing but for me, he is a striker and has to play in the middle or around Harry Kane so maybe this is a position that he can play.
"He has never played in his preferred position so he needs a team where he can play regularly in his best position and then maybe he is a player for Bayern Munich but right now, not at the moment."
- Markus Babbel was speaking to Tribalfootball.com on behalf of LeoVegas