The ex-Inter manager calls for club to hang onto Spanish stopper and states his own ambition to return to English football, although he would listen to offers from abroad
The Spanish shot-stopper has been linked with a move to Premier League rivals Arsenal and Manchester United in recent months, with the 28-year-old recently saying that he was happy but would "not swear eternal love" to any club.
Benitez, the man who brought the goalkeeper to English football in 2005, believes the Merseyside club have to retain the services of the former Barcelona and Villarreal man.
He told Yahoo: "When any team has a good player it is important to keep them. Pepe is one of the key players for Liverpool so if he stays it will be a massive boost for Liverpool."
Benitez, out of work since parting ways with Inter in December, admitted he would be tempted by offers from abroad but his priority is to return to the Premier League as he sets his sights on a return to management.
The Spaniard, who won the Champions League in 2005 and FA Cup in 2006 with Liverpool, left Merseyside last summer after guiding the side to a disappointing seventh place, just a season after running Manchester United close at the top of the table.
The ex-Valencia manager has previously been linked with a return to Anfield and with the club's board stalling over offering Kenny Dalglish an extension to his current short-term deal, Benitez admits a return to the Premier League is what he desires.
He said: "I am watching as many games as I can but in a different way as you are not under pressure and you do not need to prepare for the next game.
"I am still analysing games at the moment. If I have good offers abroad it would be ok but my priority is to return to the Premier League."
Since leaving Serie A, Benitez has enjoyed time with his family and is adamant that he does not feel his experience with Inter was a bad one.
"I think it was positive," he added. "In the circumstances that we had won two trophies which was a good achievement, especially winning the Fifa Club World Cup as this was the main target of the club. Six months and winning two trophies is not a bad statistic if you consider it in this way."
Benitez also believes that Premier League clubs are more patient than any other league in Europe and that there is more respect in the English game, and talked about another of his former players, Lucas Leiva, who was often cited as a transfer dud before becoming one of the club's most consistent performers.
"I think that people have more respect and are more patient," he continued. "You can build and prepare a team and work better with younger players. You have more time overall. In Italy or Spain you have one or two weeks and everything can change.
"I was defending Lucas from the beginning. He played a lot of games and the people in the stadium could see he was working very hard and improving every day. The more mature a player he becomes the better he will become. I am so pleased for him because he is not only a fantastic player but a nice lad."
The 50-year-old manager also took time out to have his say on how to get the best out of Fernando Torres, something he achieved at Anfield.
He added: "Fernando is a good professional and although he had some injuries he was learning the English style he was scoring a lot of goals at the beginning and at the end.
"He had a good mentality, he has good quality and his relationship with me was good because we could talk in Spanish."
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