OBS Studio – Minor Echo in recorded stream audio despite correct settings

I have Windows 11 Desktop PC, an HDMI to USB capture card (named Oxlaw) and an HDMI AV source. I am using OBS Studio as my recording app.
I can seamlessly record HDMI stream into an MP4 file. For the Audio properties setting there are 3 options for the audio device

Monitor Off, Monitor Only (i.e. mute output) Which I think is supposed to be the correct settings which was set for the audio device. The third one is Monitor and Output.

Now the issue is that when I play the recorded MP4, recorded audio is heard with minor echo as if it’s been played in a large empty room. However I think this means it’s somehow recording both audio stages (the input and output). But as per the settings it’s only Monitor Only (and mute output)
However correct audio is heard in recorded MP4 when I turn off monitor totally, but now no audio is heard during recording, which is not ideal. But working as of now.

What I tried but did not help

Restarted PC and OBS Studio
Existing app was 29.x which I uninstalled and downloaded and installed latest OBS 31.x
Tried some other video format like MKV
Adjusted the audio sample rate (44 as well as 48 Khz)
Tried enabling Custom Audio Device in properties instead of Default and selected Oxlaw
Tried changing audio source to say Desktop Audio instead of the capture card Oxlaw.
There’s a setting called Listen to this device in Windows OS Sound properties for the recording device, that’s OFF.

I am not too sure what has changed because I am doing this activity after some weeks and earlier with same setting, I was getting correct Audio in recorded MP4. The entire PC setup is same and even there’s no updates done to Windows 11

Any further troubleshooting steps would be great to know.