Taylor has been linked with Leicester City this week.
"I think he is a very good player," Dyche told LancsLive.
He added: "We want players to develop here regardless of contracts but when they sign long term contracts that is a view of them continuing their growth and he is one that is showing strong signs of that as he did last season.
"In the last handful of games he has been very strong.
"He still has to tidy up with the ball at times and make better decisions but defensively he is a very strong defender and I still think that is relevant."